The most important thing an Oshawa rental owner should know about security deposits is this: you’re not allowed to collect them.
This may be alarming to investors who own rental properties elsewhere. After all, it’s common to require your tenants to pay a security deposit along with their first month’s rent before both parties sign a lease agreement and the tenants move into the property. But, Ontario rental laws do not allow landlords to charge tenants a security deposit.
Here’s what you need to know about the rent deposit, which is completely legal and something your new tenants in Oshawa will expect.
Understanding a Rent Deposit in Oshawa
You cannot charge a security deposit, but you can charge a rent deposit. It’s a sum of money that the tenant puts down to hold the rental unit for them. When a tenant indicates they are interested in the property and they pay a rent deposit, you can safely take that rental home off the market because you know it’s going to be leased.
If the tenant fails to move into the rental within the agreed time period, they will lose their rent deposit.
When your tenant does move in according to your agreement, you must return the rent deposit.
In some cases, the landlord and tenant will agree to use that rent deposit for the last month’s rent. If that’s what you agree to with your tenant, you’ll continue to hold that money and put it towards the last month of the lease agreement.
Rent Deposit Limits
The amount of your rent deposit will depend on the terms of your rental agreement and the amount your tenant is paying in rent. If your rental agreement states that rent will be paid monthly, you will collect a rent deposit up to the amount of one month’s rent. If you have a tenant who is paying weekly, you can collect a rent deposit that equals the amount of one month’s rent.
Rent deposits can increase only if you increase the amount of rent you’re charging.
Paying Interest on Rent Deposits
When you hold the rent deposit until the end of the tenancy, you will be required to pay your tenant interest on the deposit. The interest owed is proportionate to the length of time that the deposit is held.
Generally, landlords will pay interest to their tenants on this deposit every 12 months. If you don’t, you might find that the interest owed compounds each year. The interest is payable on the total rent amount being held by the landlord, including any increases in rent.
If your tenant asks for the interest that’s due, you can allow them to subtract the amount from their next rental payment. Always be willing to pay the interest annually. Otherwise, the tenant can apply to the Landlord and Tenant Board for an order requiring you to pay, or seeking an abatement of rent.
Unlike a security deposit, you cannot use the rent deposit to pay for damages. This can be a confusing matter if you’re not experienced in Ontario rental laws. We’d be happy to help, so contact us at Investor’s Choice Property Management. We provide property management in Oshawa, Whitby, Courtice, Bowmanville, Pickering, Ajax, and communities in the regions of Durham and Clarington.