AZ Real Estate Partners
Ontario Landlords Cannot Charge Rent in AdvanceFirst + Last Month Only — No More
Many first-time landlords ask tenants for 6 months or a year of rent upfront “for security.” In Ontario, that’s illegal. The RTA permits exactly one form of deposit.
What’s the maximum deposit an Ontario landlord can collect from a tenant?
Under Ontario’s Residential Tenancies Act, Section 106, an Ontario landlord may collect only two payments at lease signing: (1) first month’s rent (regular rent), and (2) a last month’s rent deposit equal to one month of rent, applied to the final month of the tenancy. Damage deposits, cleaning deposits, prepaid 6 months of rent, or any second deposit month are illegal. The 2026 statutory interest rate on the last month’s deposit is 2.1%, payable annually to the tenant. Demanding multiple months of rent upfront — even if framed as “creditworthiness proof” — is a clear RTA violation. Tenants can file a T1 application with the LTB to recover any illegal amounts.
Five RTA-compliant deposit rules every landlord must know
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.
Three landlord scenarios — the legal alternative
Worried about payment risk: ask for credit, not prepayment
Request Equifax/TransUnion credit reports, employment letters, bank statements, and prior-landlord references. Legal risk assessment beats illegal prepayment every time.
Tenant has no credit (newcomer/student): require a guarantor
A co-signer or guarantor with Canadian credit is a legal substitute for prepaid rent. The guarantor accepts equal liability with the tenant.
Want shorter exposure: use shorter fixed terms
Sign a 6- or 12-month fixed term and re-evaluate at renewal. Shorter exposure beats illegal extra deposits.
My five rules for Ontario landlord deposits
- First + Last is the absolute ceiling—no exceptions, no “voluntary” prepayment.
- Pay deposit interest annually—at 2.1% in 2026 — undoing it is a 5-year liability.
- Cover damage with insurance—landlord insurance, not tenant deposits, is the proper risk tool.
- Key deposits at actual cost only—$50–150 is reasonable; anything more is illegal.
- Use credit checks and guarantors—evaluate risk legally; don’t bury it in extra months.
Five most common landlord deposit mistakes
- Collecting damage deposits—any deposit beyond First + Last violates the RTA.
- Deducting from last month’s rent—reserved exclusively for the final rent payment.
- Skipping interest payments—5 years of arrears can total $1,000–3,000.
- Demanding prepayment for multiple months—even with consent, it’s still illegal.
- Inflated key deposits—anything above actual key cost is unlawful.
Frequently Asked Questions
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.
Contact Arthur Zhao
Want to be a compliant landlord without surprises?
I work with landlords on RTA-compliant lease drafting, legal credit screening, insurance options, and LTB-safe risk management. Don’t try to “protect yourself” through illegal deposits.
🌐 arthurzhao.realtor · ✉️ arthurzhaorealtor@gmail.com
Arthur Zhao · Real Estate Broker · FRI · ABR · SRS · PSA · MCNE · E-PRO · CLHMS & GUILD Elite · REAIS
VP & Branch Manager, Bay Street Group Inc.
Discover more from GTA Real Estate Broker | Arthur Zhao
Subscribe to get the latest posts sent to your email.
VP & Branch Manager, Bay Street Group Inc.
为大多伦多地区客户服务的双语经纪。专注于为首购、投资者和跨境家庭提供有结构的策略。先看透，再落笔。Bilingual broker serving the Greater Toronto Area. Specialty: structured strategy for first-time buyers, investors, and cross-border families. Knowledge before commitment.
和 Arthur 聊聊。Talk with Arthur.
免费 30 分钟咨询 · 中英双语 · 无销售压力。讲清楚你的情况，我给你下一步建议。Free 30-minute consultation · Bilingual · No pressure pitch. Tell me your situation; I'll show you the next step.
相关文章Related articles
Ontario Housing Co-op Terminations: The Half the LTB Is Barred From Reviewing
Facing removal from an Ontario housing co-op, most people save their arguments for the Landlord and Tenant Board — the wrong room. Co-op terminations usually run on two tracks in a set order: the board first ends your membership under the Co-operative Corporations Act s.171.8, then the co-op seeks possession, at the LTB if Part V.1 applies or by court writ if it does not. The catch in RTA s.94.9: the LTB is barred from reviewing whether the board terminated you properly. Broker Arthur Zhao maps where the real fight happens.
A Debt That Runs With the House: How a Tenant’s Unpaid Water Bill Becomes the Owner’s Property-Tax Problem in Ontario
You buy a house, close, and months later discover you have inherited an unpaid water bill run up by the previous owner’s tenant. That is not a billing error — it is how Ontario law is built. Water is a service supplied to a property, so the arrears can be added to that property’s tax roll, gain priority lien status under O. Reg. 581/06, and be recovered from the owner at the time it was added and from any subsequent owner. Broker Arthur Zhao walks through the Toronto timeline, the two parallel statutes, and the one due-diligence step that stops it.
A Tenant Left Their Stuff Behind in Ontario: When You Can Toss It, and When Tossing It Is Illegal
Your tenant moved out and left furniture, boxes, maybe a fridge full of food — can you just throw it out? In Ontario the answer never turns on the stuff itself; it turns on how the tenancy ended. If it was properly terminated (RTA s.41) you can dispose immediately, with no storage period — except after a Sheriff-enforced eviction, where a 72-hour hold applies. If the tenant simply abandoned the unit while the lease was still running (s.42), you must first get an LTB order or notify both the tenant and the LTB, then wait a full 30 days. Broker Arthur Zhao maps the two routes and the one move that turns a cleanup into an illegal disposal.
Discover more from GTA Real Estate Broker | Arthur Zhao
Subscribe now to keep reading and get access to the full archive.