Landlord and Tenant Issues
Can a landlord keep your last month's rent deposit, and is interest owed on it?
Last updated October 7, 2026.
No. In Ontario, the only deposit a landlord can take is a rent deposit of up to one month's rent (or one week's, for weekly rent), and it must be used for the rent for the last rent period before the tenancy ends. A landlord cannot keep it for damage or cleaning. The landlord must also pay interest on it every year at the rent increase guideline rate in effect when the interest is due: 2.1% in 2026 and 1.9% in 2027.
Most deposit disputes can go to the Landlord and Tenant Board (LTB), and a tenant's claim there has a one-year time limit. Our page on landlord and tenant help in Hamilton explains how Carson Frankum, a licensed paralegal, handles LTB applications like these.
How does a last month's rent deposit work, step by step?
The rules are in sections 105 to 107 of the Residential Tenancies Act, 2006 (the Act), with the guideline rates published by Ontario and the LTB's T1 instructions.
- The landlord asks for it at the start. A landlord can require a rent deposit only on or before entering into the tenancy agreement (s. 106(1)). It cannot be demanded partway through a tenancy if none was taken at the start.
- The amount is capped. The deposit cannot be more than the lesser of one rent period and one month's rent (s. 106(2)). Ontario's standard lease has a section (section 8) where the two sides record whether a deposit is required and how much.
- The tenant can ask for a receipt. A landlord must give a free receipt for a rent deposit on request, and a former tenant can ask for one within 12 months after the tenancy ends (s. 109).
- Interest is paid every year. The landlord must pay interest annually on the amount of the deposit, at the rent increase guideline in effect when the payment becomes due (s. 106(6)).
- The deposit can be topped up. If the lawful rent goes up, the landlord can require the tenant to add enough to bring the deposit up to the new one-month amount (s. 106(3)). Instead of paying the interest out, the landlord may keep all or part of it to make that top-up, and the kept amount becomes part of the deposit (s. 106(7)).
- It pays the last month. When the tenancy ends, the landlord must apply the deposit to the rent for the last rent period (s. 106(10)). In practice, the tenant does not pay rent for that final period because the deposit covers it.
- If the tenant never moves in. If the landlord does not give the prospective tenant vacant possession, the deposit must be repaid, unless the tenant agrees to rent a different unit instead (s. 107).
| Rule | What it says | Where it comes from |
|---|---|---|
| Only deposit allowed | A rent deposit; no other security deposit (no damage, pet or cleaning deposit) | s. 105(1) |
| When it can be required | On or before entering into the tenancy agreement | s. 106(1) |
| Maximum | The lesser of one rent period and one month's rent | s. 106(2) |
| Top-up | Allowed when the lawful rent increases, up to the new maximum | s. 106(3) |
| Interest | Every year, at the guideline in effect when the interest is due | s. 106(6) |
| Interest used as top-up | The landlord may keep interest to bring the deposit up to the maximum | s. 106(7) |
| Unpaid interest | The tenant may deduct it from a later rent payment | s. 106(9) |
| Use of the deposit | Only for the rent for the last rent period before the tenancy ends | s. 106(10) |
| Refundable key or fob deposit | Allowed, up to the expected direct replacement cost | O. Reg. 516/06, s. 17 |
| Tenant's claim for a deposit or interest | T1 application within one year; fee $53, or $48 through the Tribunals Ontario Portal | s. 135; LTB fees |
How much interest is owed?
The rate is the rent increase guideline, which Ontario sets each year and caps at 2.5%. The rate that applies is the one in effect when the interest payment becomes due, not the year the deposit was paid. The LTB's T1 instructions give the example of a deposit paid on August 1, with interest due a year later at that later year's guideline.
| Year interest is due | Guideline (interest rate) | Interest on a $1,600 deposit |
|---|---|---|
| 2025 | 2.5% | $40.00 |
| 2026 | 2.1% | $33.60 |
| 2027 | 1.9% | $30.40 |
The interest is paid on the amount of the deposit. If the landlord does not pay it when it is due, the tenant may deduct that amount from a later rent payment (s. 106(9)). Keep a short note with the deduction explaining the section, so it is not mistaken for unpaid rent. If the rent has gone up, the landlord can lawfully keep the interest as a top-up instead (s. 106(7)); that is not a missed payment. For how rent itself can rise, including above-guideline rent increases, see our separate page.
What changes the answer?
- A weekly or daily tenancy. The cap is one rent period, so a weekly tenant's deposit is at most one week's rent (s. 106(2)).
- Damage to the unit. The deposit cannot be held back for damage. A landlord who wants money for damage must claim it, at the LTB while the tenant lives there or with an L10 within one year after the tenant leaves (s. 89); see claiming money from a former tenant.
- Rent arrears before the end. LTB Guideline 11 says the deposit can only be applied to the last month of the tenancy, so a landlord should not apply it to arrears before applying to evict, and an N4 is not invalid just because the landlord holds a deposit larger than the arrears. When the Board ends a tenancy for arrears, it subtracts the deposit and interest from what the tenant owes (s. 87(4)).
- A new owner. A new landlord cannot demand a fresh deposit from a tenant who already paid one to the prior landlord (s. 106(4)). If you are worried about a sale, read your rights when the landlord sells the house.
- Other charges dressed up as deposits. Pet, damage and non-refundable key deposits are not allowed (s. 105 and s. 134; Ontario's standard lease guide lists damage and pet deposits as void terms). The rules on other charges are covered in which deposits and fees a landlord can charge.
- The paperwork. Most tenancies that began on or after April 30, 2018 must use Ontario's standard lease, and an extra term that takes away a right under the Act is void. Our page on the Ontario standard lease explains what it must contain.
- An assignment or sublet. When someone takes over a tenancy or a tenant sublets, ask in writing how the existing deposit will be handled; see subletting and assigning a tenancy.
A worked example
For example, imagine a Hamilton tenant named Sam who signs a lease starting November 1, 2025 at $1,600 a month and pays a $1,600 last month's rent deposit. The first interest payment falls due a year later, in 2026, when the guideline is 2.1%, so the interest is $33.60.
The landlord also gives proper written notice and raises the rent by the 2026 guideline on November 1, 2026, to $1,633.60. The maximum deposit is now $1,633.60. Rather than paying Sam the $33.60, the landlord keeps it, and Sam's deposit becomes $1,633.60 (s. 106(7)). That is lawful, and it is good practice for the landlord to tell Sam in writing.
In 2028 Sam gives a proper N9 notice ending on a month end. Sam pays rent up to the second-last month, and the landlord applies the deposit to the final month (s. 106(10)). Sam sees a stain on the carpet when leaving, and the landlord says he will "keep the deposit for cleaning". He cannot: the deposit has already paid the last month, and any claim for damage would need its own LTB application. Sam is hypothetical; the numbers are for illustration.
Common mistakes
- Taking a "damage deposit". It is not allowed (s. 105(1)), and requiring one is an offence (s. 234(d)).
- Forgetting the yearly interest. Failing to pay interest is also an offence (s. 234(e)). The maximum fine for an offence under the Act is $100,000 for an individual and $500,000 for a corporation (s. 238).
- Using the deposit for the wrong thing. Applying it to cleaning, damage or an earlier month's arrears, instead of the last rent period, breaks section 106(10) and is an offence under section 234(f).
- Tenants paying the last month anyway. If you paid a deposit, it covers the final rent period. If you pay rent for that period too, ask the landlord in writing to refund the deposit and interest.
- Asking for a deposit after the tenancy starts. A landlord that did not take a deposit on or before signing cannot require one later (s. 106(1)), though a top-up after a lawful rent increase is allowed.
- Waiting more than a year. A tenant's T1 claim for money retained in breach of the Act must be filed within one year (s. 135(4)).
What to do this week
- Find proof of the deposit: your lease (section 8 of the standard lease), a receipt or a bank record. If you have none, ask the landlord for a receipt (s. 109).
- Work out each year's interest using the guideline for the year it fell due.
- Check whether the rent went up; if it did, the landlord may have kept interest as a top-up.
- If interest is unpaid, write to the landlord first, then consider deducting it from a later rent payment with a written explanation.
- If you are moving out, confirm in writing that the deposit will pay the last rent period.
- If a deposit or interest was kept unlawfully, note the date; the one-year limit for a T1 runs from then.
- For help with a T1 or a landlord's application, contact Cheddar Paralegal PC in Hamilton.
Frequently asked questions
Can a landlord keep the deposit if I leave the unit dirty or damaged?
No. The deposit can only be applied to the last rent period. A landlord who wants money for damage must make a separate claim and prove it, and normal wear and tear cannot be claimed.
What if I moved out and the landlord kept my deposit?
You can file a T1 application asking the LTB to order the landlord to pay it back, within 12 months of the date the landlord kept the money unlawfully. The fee is $53, or $48 through the Tribunals Ontario Portal.
Can I use the deposit as my last month's rent?
Yes; that is what the law says it is for (s. 106(10)). Give proper notice first, and confirm in writing which rent period the deposit will cover.
Can a landlord ask for first, last and a security deposit?
First month's rent and a last month's rent deposit are allowed. Any other security deposit is not (s. 105(1)), except a refundable key or fob deposit up to the expected replacement cost (O. Reg. 516/06, s. 17).
Is interest owed even if the deposit was paid years ago?
Yes. Interest is owed every year the landlord holds the deposit, at that year's guideline rate (s. 106(6)). A T1 can claim unpaid interest, but the Board cannot make an order on an application filed more than one year after the money was collected or retained (s. 135(4)), so claim promptly.
Can a landlord demand a bigger deposit after a rent increase?
Yes, but only enough to bring the deposit up to the new one-month rent (s. 106(3)), and the landlord may use the yearly interest to do it.
What if we cannot agree?
Start with a short letter that names the sections of the Act. If a T1 is filed, the LTB's dispute resolution process may help the two sides settle; see mediation at the Landlord and Tenant Board.
Sources
- Residential Tenancies Act, 2006 (Ontario e-Laws, current consolidation from September 21, 2026)
- O. Reg. 516/06, General, under the Residential Tenancies Act, 2006 (Ontario e-Laws)
- Rent increase guideline (ontario.ca, updated June 23, 2026)
- Guide to Ontario's standard lease (ontario.ca)
- LTB instructions for Form T1: Tenant Application for a Rebate
- LTB brochure: A Guide to the Residential Tenancies Act
- LTB brochure: Information for New Tenants
- LTB Interpretation Guideline 11: Rent Arrears
- LTB forms, filing and fees (Tribunals Ontario)
- LTB operational update: legislative changes effective July 1, 2026, including higher maximum fines (Tribunals Ontario)
Facing a landlord-tenant issue? Contact us today for assistance.
This page gives general information about Ontario law, not legal advice for your situation. Cheddar Paralegal PC is a paralegal firm licensed by the Law Society of Ontario; licensed paralegals can help only with matters the Law Society allows paralegals to handle.