Last Month's Rent Deposit in Ontario: Rules, Interest, and Getting It Back

When you sign a lease in Ontario, a landlord will almost always ask for a last month's rent (LMR) deposit alongside your first month's rent. That is perfectly legal — but only within strict limits set by the Residential Tenancies Act, 2006. The last month's rent deposit Ontario rules are more precise than most tenants or landlords realize, and violations are common.

If your landlord is refusing to return your deposit, demanding a separate damage deposit, or charging fees for pets or keys on top of rent, you may have grounds for a remedy at the Landlord and Tenant Board (LTB). This article explains exactly what landlords can and cannot collect, how interest on deposits works, and what steps tenants can take when something has gone wrong.

What a Landlord Can Legally Collect at the Start of a Tenancy

Ontario law limits the money a landlord can demand before or at the start of a tenancy to two items:

• First month's rent — payment for the first rental period.
• Last month's rent deposit — a sum equal to no more than one month's rent (or one rental period if rent is paid weekly or bi-weekly), held and applied to the final period of the tenancy.

Beyond these two, the regulations allow only narrow extras, such as a refundable key or fob deposit no greater than the expected replacement cost.

What Is Illegal in Ontario

Many landlords — particularly those who are inexperienced or who have operated in other provinces — attempt to collect money that Ontario law does not allow. The following are illegal under the Residential Tenancies Act, 2006:

• Security deposits or damage deposits of any kind
• Pet deposits (even if you have a dog or cat)
• Key deposits that are non-refundable or above the expected replacement cost (a refundable deposit for keys, fobs, or access cards is permitted only up to that cost)
• Any deposit greater than one month's rent at the time it is collected
• Charging non-refundable fees at the start of a tenancy

If a landlord collects any of these, a tenant can apply to the LTB for a return of the money.

Legal vs. Illegal at a Glance

Interest on the Last Month's Rent Deposit

A landlord who holds an LMR deposit is not simply holding neutral funds. Ontario law requires landlords to pay annual interest on the deposit. The interest rate is set each year and equals the rent increase guideline for that year — the same percentage cap that limits how much a landlord can raise rent without LTB approval.

Key points about LMR deposit interest:

• Interest accrues annually from the date the deposit was collected.
• The landlord must either pay the interest to the tenant or, more commonly, apply it as a credit toward a top-up of the deposit (see below).
• If the landlord never pays the interest and never tops up the deposit, that unpaid interest belongs to the tenant and can be claimed at the LTB.
• The interest is due every year; if the landlord does not pay it when due, the tenant may deduct it from a later rent payment.

Topping Up the Deposit When Rent Increases

The LMR deposit is meant to equal the rent in effect for the last month of the tenancy. When rent goes up, a landlord is entitled to ask a tenant to top up the deposit so it stays equal to the new rent amount.

The interest can count toward the top-up:

1. Instead of paying out the year's interest, the landlord may keep it and count it toward the top-up.
2. If the landlord does that, only the top-up minus the interest kept is left for the tenant to pay.

If a landlord demands a top-up and has neither paid out nor credited the interest owed on the deposit, the tenant can dispute the claim at the LTB.

How the Deposit Is Applied at Move-Out

The LMR deposit must be applied to the last rental period only. A landlord cannot apply it earlier — for example, to cover unpaid rent mid-tenancy. The Act makes this mandatory (s. 106 (10)), and a term in the lease cannot override it; only a settlement through the Landlord and Tenant Board can.

At the end of the tenancy:

• The deposit is credited toward the final month (or final rental period) of rent.
• The tenant does not pay rent for that last period if the deposit equals that rent; if it is lower, only the difference is owed.
• The landlord cannot use the deposit to cover cleaning costs, repairs, or damage. Those claims must go through the LTB as a separate application.

This is a key point in Ontario: the LMR deposit is the only security deposit the Act allows, and it cannot be used as a damage deposit.

How to Reclaim an Unlawfully Collected Deposit

If a landlord collected a deposit that Ontario law does not permit — a damage deposit, a pet deposit, a key deposit — a tenant can file an application with the LTB to get it back.

Steps tenants typically take:

1. Gather documentation: the lease, any receipts, emails, or texts showing the payment was made and what it was called.
2. Write to the landlord: a brief, calm written request for the return of the unlawfully collected amount, sent by email so there is a record.
3. File at the LTB: if the landlord does not return the money, file a T1 application (tenant application about landlord collecting illegal charges). The LTB can order repayment by a set date, and interest runs only if it is paid late.

There are limitation periods that apply to LTB applications. Do not wait indefinitely — speak with a lawyer if you are unsure how long you have.

What to Do If a Landlord Won't Return Your Deposit at Move-Out

At the end of a tenancy, the deposit is automatically credited to the last month. The landlord is not handing you a cheque — the deposit offsets what you owe. If a landlord claims you still owe last month's rent even though you paid an LMR deposit, or if the landlord is trying to keep the deposit for damage claims, your options include:

• Sending a written demand reminding the landlord of their obligations under the Residential Tenancies Act, 2006.
• Filing a T1 application at the LTB if the deposit was collected illegally.
• Filing a T2 application if the landlord's conduct amounts to an interference with your rights.

Frequently asked questions