First + Last month: the only legal deposit

At lease signing, a tenant pays at most two months: first as regular rent, second as a last month’s rent deposit. The deposit must be applied to the final rent payment of the tenancy — not to damages, cleaning, or arrears. This is the core RTA Section 106 rule.

Damage deposits are not legal

“$500 reserve”, “$1,000 damage deposit”, “$500 cleaning deposit” — all illegal. Ontario’s RTA permits no deposit beyond First + Last. For damage, landlords must rely on insurance or Small Claims Court, not deductions from a tenant’s funds.

Key deposits must equal actual key cost

The only permitted additional deposit is a key deposit, but it must equal the actual cost of replacing the key or remaking the lock — typically $50–150. Charging $500 or $1,000 as a key deposit is illegal. Returning all keys requires a full key-deposit refund at move-out.

Annual deposit interest: 2.1% in 2026

Interest on the last month’s deposit belongs to the tenant. The Ontario government sets the rate annually — 2.1% for 2026. Landlords must pay (or credit) the interest each lease anniversary. Failure means the tenant can recover up to 5 years of arrears interest via the LTB.

Prepaying 6 or 12 months: still illegal

A common landlord shortcut — “pay a year upfront, I’ll discount $100/month” — is unlawful, even if the tenant agrees. Tenants can file T1 at any time to claw back everything beyond the legal Last Month deposit, plus interest and penalties.

Can a landlord accept prepaid rent if the tenant volunteers?

No. RTA Section 106 is prohibitive — tenant consent is not a defense. Even if both parties sign a “voluntary” addendum, the tenant can later file T1 with the LTB to recover the excess. This is the most common landlord trap — assuming “agreement” makes it legal.

Can the last month’s deposit be applied to damages?

No. It is reserved by law for the final rent payment of the tenancy. Damages must be pursued through landlord insurance or Small Claims Court — not deducted from the deposit. This is one of the most frequent LTB disputes.

What’s the 2026 deposit interest rate, and how should I pay it?

2.1%, set by the Ontario government. Pay annually on the lease anniversary — by cheque, e-transfer, or as a documented credit toward the next month’s rent. Skipping it allows the tenant to recover up to 5 years of arrears interest.

If a landlord collected illegal deposits, what’s the tenant’s remedy?

File Form T1 with the Landlord and Tenant Board — “Tenant Application for a Rebate”. Recovery typically covers the past 12 months (or longer in special cases). The LTB usually orders a full refund plus interest and may impose penalties. Process: 3–6 months.

Should I accept a discount in exchange for paying extra deposits?

No. The discount doesn’t make the prepayment legal. If the landlord defaults later (sale, breach, renoviction), your “extra deposit” has no LTB enforcement basis because it was illegally collected. Insist on standard First + Last only.