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.

Nothing else is permitted. That is the complete list.

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 (a refundable deposit for keys, fobs, or access cards is not permitted)
• 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, plus interest.

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.
• There is no set deadline by which the landlord must hand over the interest payment, but it must be accounted for by the time the tenancy ends.

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.

However, the landlord must follow a specific process:

1. The landlord must first apply any outstanding interest on the deposit to the top-up amount.
2. Only the net difference — the top-up minus accumulated interest — can be requested from the tenant.
3. The landlord cannot demand the full top-up in one lump sum if it exceeds the interest credit; the tenant has the right to pay the balance over time as agreed.

If a landlord demands a top-up without first accounting for interest owed, 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 — without the tenant's written agreement.

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; the deposit covers it.
• 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 one of the most important distinctions between Ontario and other jurisdictions: the LMR deposit is not a security deposit and cannot be treated like one.

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 plus interest.

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