Thursday, 14 August 2014

Last Month's Rent Deposit: When do you use it?

Tenants in Ontario are quite familiar with usual requirement of landlords to provide a first month's rent and a Last Month's Rent deposit before moving into an apartment.  In fact, it is unusual for a landlord to provide a tenant with possession until such time as these two amounts are paid.

As discussed in other articles in this blog, a Last Month's Rent deposit is the amount of the monthly rent that is held by the landlord for the last month of the tenancy.  The legal authority to collect this deposit may be found in section 106 of the Residential Tenancies Act.  The amount of the deposit is limited to the lesser or the amount of rent for one rent period and the amount of rent for one month.  The deposit could be less than one month of rent if there is a rent discount [see section 106(2) RTA for the limit on the amount of the deposit].

So what normally happens is that a tenant signs a one year lease that sets out the first month of the lease and which sets out the last day of the last month of the lease.  For example, a lease may provide that the lease starts on June 1, 2014, and that it ends on May 31, 2015.  This is for a term of 12 months.  The question is, when does the last month rent deposit get used?  Many tenants and landlords believe that the deposit is to be used for the month of May 2015 because that is the last day of the term of the written lease.  This is not necessarily correct.

While a person may have a written lease for 12 months, the fact is that in Ontario the tenancy does not end at the expiry of the term.  Automatically, using the example above, the lease continues on a month to month basis on June 1, 2015, unless the lease has been terminated by Notice of Termination that has been properly served.  If the tenancy has not been terminated by giving 60 days notice, the Last Month's Rent deposit is kept by the landlord until the tenancy is actually terminated.  This means that a tenant, who has not terminated the tenancy, is in fact required to pay the rent for June, 2015 and onwards.

To carry through on the example, let say the tenancy continued on a month to month basis until August 2015, and on August 15, 2015, the tenant decides to terminate her tenancy.  The tenant will provide the landlord with a 60 day Notice (Form N9), which will have October 31, 2015 as the termination date (the termination date must be the last day of a term).  In this example, the Last Month's Rent deposit will be applied to the month of October 2015.

Michael K. E. Thiele
Landlord and Tenant Lawyer
Ottawa, Ontario

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