When starting a new tenancy there are lots of pieces to consider, should you ask for a credit check, should you ask for references, what clauses should you put in the lease, etc. Often small landlords will consider asking their tenants for a security deposit. Most deposits are illegal and charging one could result in fines and damages being awarded by the Landlord and Tenant Board.
Rent deposits equal to one month’s rent are permitted under the Residential Tenancies Act. That’s why most landlords ask for first and last month’s rent upon signing a lease. Interest is to be paid annually on the deposit, equal to the amount of the rent increase guideline (1.8% in 2019). The last month’s rent deposit is only to be used to cover the last month of the tenancy it cannot be used to cover arrears nor damage done to the unit.
Key deposits are also permitted in Ontario. However, there are some conditions:
- the deposit must be refundable upon the return of the keys at the end of the tenancy,
- the amount of the key deposit cannot be more than the expected cost of replacing the keys if they are not returned.
Given the strict replacement cost limit for legal key deposits, key deposits should not be a large amount unless there are electronic key fobs for keys.
Security deposits are still prevalent in many other jurisdictions, but in Ontario they are illegal. Likewise, damage deposits, hydro deposits, pet deposits, etc. are also illegal. You are not allowed to charge extra on top of a rent and key deposit.
It is illegal to charge an application fee to new, prospective tenants. A common attempt to get around this provision is for landlords to charge a small fee to process a credit check. While landlords are free to ask for a credit report or even perform a credit check on a prospective tenant, the Residential Tenancies Act in section 134(1)(b) forbids landlords from charging for an additional service as a condition of tenancy application. Given the prohibition on charging for services as a condition of tenancy, requiring tenants to pay a landlord directly for a credit check is an unlawful application fee.
Consequences for Charging an Illegal Deposit/Fee
A tenant who has been made to pay an illegal charge can apply to the Landlord and Tenant Board for a rebate, by using the T1 Tenant Application for a Rebate form, there would then be a hearing scheduled. You may also have to pay the tenant’s expenses/damages relating to the hearing. A landlord can also be fined by the Board at the hearing for taking an illegal charge. The maximum fine for a non-corporate landlord is $25,000 and for a corporate landlord $100,000.
It is better to prevent problems before they begin. As such, it is best practise for landlords to follow the law. By charging an illegal fee or deposit you open yourself up to lengthy, complex litigation and possible fines or damage orders. If you are experiencing problems with your landlord, tenant relationship, your best course of action is to speak with an experienced housing lawyer. Mehdi Au LLP has housing lawyers on staff that can assist you.
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