From time to time clients bring me some odd leases that have been drafted, not by lawyers, but by landlords themselves. For the most part the terms are reasonable and generally enforceable. However, one area that is always problematic, is anything to do with security deposits and "additional charges". Often, the security deposits seem reasonable and the additional charges for things like late payment of rent charges (sometimes as interest) and charges for "included" furniture are not shocking to the conscience. The problem though, is that the vast majority of the charges levied in this way are illegal under the Residential Tenancies Act.
With respect to security deposits in Ontario, the only legal security deposit is a rent deposit for the last month's rent that a landlord must collect on or before entering into a tenancy agreement. This means that it is Illegal to demand a security deposit for things like damage to the rental unit--whether or not the charge is refundable. A landlord simply can not get "extra" security under the law. The legal limitations in this regard are set out in section 105 (Security Deposit Limitation) of the Residential Tenancies Act and section 106 (Rent Deposit May be Required).
The restriction on security deposits and what may legally be charged to tenants has many landlord's very upset. The source of the upset may be summarized as a feeling that the government is unnecessarily curtailing what a property owner can do with their lands--even to the extent of over-riding the terms of a contract willingly entered into by a tenant. The argument generally goes that a landlord should be allowed to offer his premises on whatever terms he wishes and if a prospective tenant does not like it--then they do not have to rent the unit. This argument finds a fair amount of favour among land owners and often they point at the laws that apply to commercial tenancies in Ontario to demonstrate that people can successfully negotiate the terms of leases--that work--without the nanny state interfering. That being said, this simply is not the law in Ontario.
Given the restriction on security deposits, landlords will sometimes try to come up with other creative charges to circumvent the prohibition on security deposits. The law has answered such schemes with section 134 of the Residential Tenancies Act that says: ADDITIONAL CHARGES PROHIBITED. This section makes it illegal for a landlord to directly or indirectly with respect to any rental unit collect or require or attempt to collect or require from a tenant or prospective tenant of the rental unit a fee, premium, commission, bonus, penalty, key deposit or other like amount of money whether or not the money is refundable. The section goes further to catch even other scenarios (see the link above to read the legislation).
What I think is quite iumportant to note is the prohibition on even just asking the tenant for such a charge. I have seen it often enough where a landlord, knowing the proposed charge is illegal, decides to try it on with the tenant. If the tenant accepts it then the charge is taken---if the tenant objects, the landlord figures that there is no harm in trying. I note here, that in fact there is "harm in trying" as it is illegal to even propose an illegal charge to a tenant. Proposing it, may indeed be enough for charges to be laid against a landlord under the Residential Tenancies Act pursuant to the Provincial Offences Act. In my opinion, this will be more likely where the landlord can be demonstrated to be pursuing such charges knowing full well that the charges are not proper.
The issue of legal and illegal charges and security deposits needs to be of equal interest to landlords and tenants. For tenants the interest is to avoid paying what the law says need not be paid. For landlords, complying with the law has its own reward which in this case is to avoid being taken the Landlord and Tenant Board by your tenant or worse, having the Investigations Branch lay charges against you.
Michael K. E. Thiele