Short answer
A rent deposit is generally limited to the lesser of one month’s rent and one rental period. It must be used for the last rental period, and the landlord generally owes annual interest at the applicable guideline rate.
The buyer or owner’s concern
A purchaser sees “security deposit,” last-month rent and key money on the seller’s ledger and assumes all amounts can be retained for damage or added to closing proceeds.
What Ontario’s official guidance says
The Residential Tenancies Act limits the rent deposit, directs its application to the last rental period and provides for interest. Ontario also prohibits certain extra fees or premiums.
What the rule does not guarantee
A rent deposit is not a general damage deposit. Key deposits have separate limits and must be refundable. The buyer and seller must properly adjust transferred deposits and interest at closing.
A practical Ontario example
Illustration only: The seller collected first and last month plus an extra month labelled “security.” The purchaser should not treat the extra payment as lawful cash flow or assume it can be kept for repairs.
Practical next steps
Have the lawyer reconcile rent deposits, interest, prepaid rent and arrears in the statement of adjustments. Ask for the lease and ledger before conditions expire. Keep operating reserves rather than relying on tenant deposits to fund repairs or mortgage payments.
Questions to ask before relying on the rent
- What is the current lawful rent and when was it last increased?
- Is the unit guideline-covered or genuinely exempt?
- Do the lease, notices, ledger and seller’s statements agree?
- Does the purchase require vacant possession or future higher rent to remain affordable?
- Which issue needs a lawyer or licensed paralegal before conditions are waived?
Rajiv’s broker perspective
A lender’s rental worksheet and Ontario tenancy law answer different questions. The lender may recognize only part of the rent, while the owner may also be unable to increase rent or obtain vacancy on the expected date. I would qualify the mortgage using verified lawful rent, test vacancy and repair reserves, and compare A, alternative/B, MIC or private options only after the legal occupancy assumptions are confirmed.
Related: Real Estate Centre · Mortgage Knowledge Centre · Updates & Rules Centre
Buying or refinancing a tenant-occupied property?
Send Rajiv the property type, lawful rent, lease dates and intended occupancy. He can test the mortgage using realistic rental assumptions and identify when independent landlord-tenant advice is needed.
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