Interest owed to tenant on last month’s rent deposit
A question that I get from time to time is how to calculate the interest owing on a last month’s rent deposit. The question is usually complicated by a multi-year tenancy where no interest has been paid during the entire tenancy. How do you figure out how much interest is owed to the tenant?
The law that governs last month’s rent interest is the Residential Tenancies Act and specifically section 105(6) RTA. That section provides that a landlord shall pay interest to the tenant, annually, on the amount of the rent deposit at a rate equal to the guideline interest determined under section 120 that is in effect at the time payment becomes due.
The Guideline Interest amount is the amount that a landlord may increase the rent by every year. That percentage is set annually by the government and is published annually. These are the annual percentages for the last 8 years.
2023 2.50%
A question that I get from time to time is how to calculate the interest owing on a last month’s rent deposit. The question is usually complicated by a multi-year tenancy where no interest has been paid during the entire tenancy. How do you figure out how much interest is owed to the tenant?
The law that governs last month’s rent interest is the Residential Tenancies Act and specifically section 105(6) RTA. That section provides that a landlord shall pay interest to the tenant, annually, on the amount of the rent deposit at a rate equal to the guideline interest determined under section 120 that is in effect at the time payment becomes due.
The Guideline Interest amount is the amount that a landlord may increase the rent by every year. That percentage is set annually by the government and is published annually. These are the annual percentages for the last 8 years.
2023 2.50%
2022 1.20%
2021 0.00%
2020 2.2%
2019 1.8%
2018 1.8%
2017 1.5%
2016 2.0%
2015 1.6%
2014 0.8%
2013 2.5%
When the landlord does not pay the interest annually the amount owed is not compounded and interest does NOT run on the interest. Accordingly, if you are calculating a multi-year amount of last month rent interest you calculate each year separately and then add all those amounts together.
EXAMPLE
Basic Facts for example calculation
The amount of rent on deposit is $1000.00
Tenancy started: January 1, 2014
Interest Never Paid
Annual rent never increased
Tenancy Ended Legally on November 30, 2018
Calculation
Year 2014 $1000 x 0.8% = $8.00 (1)
Year 2015 $1000 x 1.6% = $16.00 (2)
Year 2016 $1000 x 2.0% = $20.00 (3)
Year 2017 $1000 x 1.5% = $15.00 (4)
Year 2018 $1000 x 1.8% = $ 18.00 /12 = $1.50 x 10 months = $15.00 (5)
The amount of interest owed to the tenant on the deposit for the entire tenancy is 1+2+3+4+5 which totals $74.00.
Note that each year's interest is just added to the subsequent years interest without compounding the interest (i.e. no interest on interest). This is known as simple interest.
WHAT HAPPENED IN YEAR 2018 (i.e. #5)?
The interest owed must take into account the fact that the deposit was not held by the landlord for the entire year. Because the tenancy ended on November 30, 2018, there were only 11 months in the tenancy in the year 2018. You will notice, that the interest calculated is only for 10 months and not 11 months. The reason for this is that the last month’s rent deposit was applied to the last month of the tenancy–meaning the landlord became entitled to the money on November 1, 2018, and therefore it was no longer a deposit as of that date.
WHAT IF THE RENT WAS INCREASED DURING the tenancy?
During the course of a tenancy a landlord may increase the rent in accordance with the Residential Tenancies Act. When the landlord does this, the landlord may also require the tenant to increase the rent deposit to the legal amount of the current rent. As the rent increase (for most rental units now) is the exact same as the interest that is payable on the deposit, it is often the case that the interest payable is just added to the deposit and therefore nothing is owing to the tenant BUT at the same time the deposit is increased to the current rent amount. If the landlord does not take an annual rent increase or does not take the full amount authorized there will then be an interest amount owing to the tenant.
Prior to recent changes, there were many rental units that were exempt from the annual guideline amount. Those units may have had the rent increased by more than the interest payable on the deposit. In those situations, the rent interest may be insufficient to cover the shortfall between the deposit and the lawful rent. Unfortunately, the match between interest payable and maximum rent increases is a again set to diverge as the current government is exempting very new buildings and rental units from the maximum guideline amount on the basis that this will spur the construction of new rental units.
Michael K.E. Thiele
www.ottawalawyers.com
2019 1.8%
2018 1.8%
2017 1.5%
2016 2.0%
2015 1.6%
2014 0.8%
2013 2.5%
When the landlord does not pay the interest annually the amount owed is not compounded and interest does NOT run on the interest. Accordingly, if you are calculating a multi-year amount of last month rent interest you calculate each year separately and then add all those amounts together.
EXAMPLE
Basic Facts for example calculation
The amount of rent on deposit is $1000.00
Tenancy started: January 1, 2014
Interest Never Paid
Annual rent never increased
Tenancy Ended Legally on November 30, 2018
Calculation
Year 2014 $1000 x 0.8% = $8.00 (1)
Year 2015 $1000 x 1.6% = $16.00 (2)
Year 2016 $1000 x 2.0% = $20.00 (3)
Year 2017 $1000 x 1.5% = $15.00 (4)
Year 2018 $1000 x 1.8% = $ 18.00 /12 = $1.50 x 10 months = $15.00 (5)
The amount of interest owed to the tenant on the deposit for the entire tenancy is 1+2+3+4+5 which totals $74.00.
Note that each year's interest is just added to the subsequent years interest without compounding the interest (i.e. no interest on interest). This is known as simple interest.
WHAT HAPPENED IN YEAR 2018 (i.e. #5)?
The interest owed must take into account the fact that the deposit was not held by the landlord for the entire year. Because the tenancy ended on November 30, 2018, there were only 11 months in the tenancy in the year 2018. You will notice, that the interest calculated is only for 10 months and not 11 months. The reason for this is that the last month’s rent deposit was applied to the last month of the tenancy–meaning the landlord became entitled to the money on November 1, 2018, and therefore it was no longer a deposit as of that date.
WHAT IF THE RENT WAS INCREASED DURING the tenancy?
During the course of a tenancy a landlord may increase the rent in accordance with the Residential Tenancies Act. When the landlord does this, the landlord may also require the tenant to increase the rent deposit to the legal amount of the current rent. As the rent increase (for most rental units now) is the exact same as the interest that is payable on the deposit, it is often the case that the interest payable is just added to the deposit and therefore nothing is owing to the tenant BUT at the same time the deposit is increased to the current rent amount. If the landlord does not take an annual rent increase or does not take the full amount authorized there will then be an interest amount owing to the tenant.
Prior to recent changes, there were many rental units that were exempt from the annual guideline amount. Those units may have had the rent increased by more than the interest payable on the deposit. In those situations, the rent interest may be insufficient to cover the shortfall between the deposit and the lawful rent. Unfortunately, the match between interest payable and maximum rent increases is a again set to diverge as the current government is exempting very new buildings and rental units from the maximum guideline amount on the basis that this will spur the construction of new rental units.
Michael K.E. Thiele
www.ottawalawyers.com
Hi Michael,
ReplyDeleteI'm in a situation where I put in my 60 days notice to move out but just recently noticed that the rent increase my landlord did is considered illegal. I was only living at the rental unit for 2 months in 2018 when he told my roommate rent is increasing, I calculated and the increase was 1.85%. He did not provide me any written notice about the increase. What can I do or what form do I file to claim my money back?
Thank you
Hi Janice: Take a look at the Ontario Landlord and Tenant Board website and under the Forms section take a look at form T1. This is the form you will use to apply for a rebate or return of an illegal rent. You can also just google T1 Form Landlord and it will pop up.
DeleteWhether you can make use of the form or not will depend on whether you are a tenant and were in a legal relationship with the landlord. Your description of being at the unit for only 2 months and having a roommate makes me wonder whether you actually were a tenant. If you are in a location where there is a local community legal clinic consider popping in and asking them to look over your facts to determine whether you are entitled to a refund. You should be aware that there is a $50 filing fee and if you lose you will not get that money back. Consider as well whether the amount of the increase is enough to make this worth your while if you are asking for only 2 months of illegal rent that is 1.85% above the presumed lawful amount.
Best of luck
Michael K. E. Thiele
www.ottawalawyers.com
Received an N1...the amount of rent is wrong. I currently pay $3200 and the N1 says $3500 + 1.8% increase. How do I refute this amount? Ontario.
ReplyDeleteHi: There isn't a particular way to challenge the N1 after being served with it. You could contact the landlord and advise them of the mistake--but that is up to you. Alternatively, you could do nothing and just wait. When the time for the rent increase comes you could refuse to pay it. The landlord would (presumably) figure out the problem when they notice that you haven't paid the rent increase. You could tell them then why you are not paying or don't tell them. The landlord could then serve you with a Notice of Termination for Non-Payment of rent. You could 1) pay, 2) don't pay, 3) don't pay and explain why. If you go with #2 and just don't pay, then the Landlord might apply to the Landlord and Tenant Board. That hearing will come in several weeks time. It is at the hearing that you can challenge the lawful rent. Bring your N1 and your legal argument to the hearing. Explain to the adjudicator why the N1 is invalid. If you are correct the landlord's application will be dismissed. If you are incorrect you will be ordered to pay the rent arrears plus the application fee ($175 likely). You will be given a minimum of 11 days to pay and then the termination and eviction will be voided and you get to stay.
DeleteIs there a reason to be coy about the problem with the N1 (Notice of Rent Increase)? Why not tell the landlord? A reason might be that the rent can not be increased without at least 90 days notice. The longer it takes for the landlord to figure out the rent increase was invalid the longer it will take for them to serve you with a proper and valid N1. Ultimately, it buys you time, delays the increase, and extends the time for the next increase (one increase only per year).
Good luck
Michael K. E. Thiele
www.ottawalawyers.com
Hello, I am in a similar situation where the landlord may give me a N1 notice with an illegal amount. In that situation, I am wondering if on the day of the supposed rent increase (90 days later), should I:
Delete1) Continue to pay the original rent amount prior to increase OR
2) Pay the original rent amount plus the valid increase as per the guideline.
Does being served an N1 with an illegal increase make it legal? How do I know if the Landlord had actually made an application to go beyond the increase? Or will the Landlord and Tenant Board serve me a notice if the application goes through?
Thank you for your help.
Hi: If the N1 amounts to an illegal increase then you shouldn't pay it. There is no point in paying an increased amount that "would have been" legal because this amount is also not legal without a proper Notice of Rent Increase. You are not obligated to tell the landlord about their mistake. Your self interest dictates that you say nothing for as long as possible because until a proper Notice of Rent Increase is served your rent stays the same. You might expect the landlord to serve a Notice of Termination for Non-Payment of Rent (when you don't pay the increase), you can decide then when or if to inform the landlord of the error or alternatively continue to let it play out.
DeleteIf the Landlord made an application for an Above Guideline Rent increase you would have been served with a Notice of Application, would have received an Order from the Board, and would have received a Notice of Rent Increase indicating that fact.
Michael K. E. Thiele
www.ottawalawyers.com
I understand this is an old comment, however as a landlord, I consider this advice to be malicious and terribly egregious. If the landlord is managing several properties, its possible they made a mistake and I don't see the issue addressing it. Waiting months, not paying living expenses, and forcing the landlord to take LTB action for non-payment, shows the extremely selfish nature of humanity. We all have to pay to live and our dwelling place is our greatest expense, whether that's renting or owning.
DeleteWith respect, there is nothing "malicious" (intending to do harm), or "egregious" (extraordinary in some bad way), about the comment. It is perhaps best characterized as a don't shoot the messenger discussion. You mention being a landlord--hopefully, the comment and information contained within it serves as a warning to you about the importance of strict compliance with the Residential Tenancies Act (RTA). Whether you like it or not, the comment and discussion reflects what actually happens in the application of the RTA to fact scenarios discussed. And lastly, the article discusses the impact of a failed Notice of Rent Increase--or an N1 that is illegal. In the discussion it is the landlord who is violating the law and charging too much (more than permitted) and perhaps visiting tremendous hardship on a tenant who is struggling to make ends meet even at the rent charged amount before the illegal increase. If you want to be indignant perhaps that is where you should look even though your perspective is as a landlord.
DeleteI gave my landlord 625dollars 12 years.have never received any kind of interest.Am moving.out end of June.How much would he owe me.
ReplyDeleteHi: You will need to go back to the start of the lease and calculate the interest owing for each year. The percentage is equal to the annual guideline increase amount. Calculate the simple interest for each year and add the amounts together for the total owed. For example, the annual guideline amount for 2019 is 1.8%. So, to calculate the interest owed for 2019 you would multiply the deposit by 1.8% which equals $11.25 ($625 x 1.8%). The annual guideline for 2018 was also 1.8% so the interest owed for 2018 is also $11.25. Do this calculation for each year that the LMR was held by the landlord. You can get the annual guideline amounts just by Googling it or looking on the landlord and tenant board website under the FAQ section there is a chart with the historical annual guideline increase amounts.
DeleteMichael K. E. Thiele
www.ottawalawyers.com
I have had a great tenant since October 1st 2018 who paid his first and last months rent as asked. I need to pay him interest on his deposit but I cannot find the rate for Ontario Canada. Where can I find it?
ReplyDeleteThe interest rate paid on the last month's rent deposit is the same as the annual guideline increase amount for the rent. If you search "annual guideline increase ontario" you will come to a page with the percentages for all the years. The percentage is 1.8% for 2018 & 2019. For 2017 it was 1.5%
DeleteHello, I have a question regarding lmr deposit interest. I have never received an interest on my deposit. If I am a tenant for a building for 3 years and it is a rent controlled building. My initial deposit was $810 but with the rent increases each year my lmr has changed. Would the landlord take the first deposit amount to calculate the interest or each year the new lmr deposit would be used to calculate the interest rate?
DeleteThank you.
If the Landlord has not paid the deposit interest to you on an annual basis it would be reasonable for you to take the position that the prior year's interest was added to the LMR to create a new LMR amount. You would then calculate the subsequent year's interest on the combined amount of the original LMR plus the interest that is added to it annually.
DeleteI lived in this apartment since year 2001 and ended August 2019...My last month deposit was P800.00, My landlird never pay me annual interest, How much she is owing me now?
ReplyDeleteHi: A last month's rent deposit of $800 paid on January 1, 2001 and being used to pay the last month of rent for August 2019, on which amount interest has never been paid, will result in you being owed $473.80. Your question did not indicate a start date for the deposit having been paid so I presumed a start date of January 1, 2001. If you paid the deposit in a later month (i.e. after January 2001--but still in 2001), then multiply the number of months before you paid by $4.00 and deduct that amount from $473.80 [for example, if you paid the deposit on May 1, 2001, then you must deduct 4 months of interest (January to April) which is $16.00.
DeleteFor anyone who is interested in the math. The years 2001 to January 31, 2017, are calculated at 6% per year. After January 31, 2007, interest is calculated at the Annual Guideline Increase amount. The following percentages were used starting February 2007 to present year 2019: 2.6%. 1.4%, 1.8%, 2.1%, .7%, 3.1%, 2.5%, .8%, 1.6%, 2%, 1.5%, 1.8%, 1.8% [these are the annual guideline increases from 2007 to 2019]. Interest is simple interest (not compounded). Note that you should not calculate any interest for the month in which the deposit is being used to pay the rent.
Michael K. E. Thiele
www.ottawalawyers.com
In your second paragraph, is the 2017 supposed to be 2007?
DeleteMy landlord,Sold the apartment where 8 live for 19 years, the new owner want us to vacate the apt..So my landlord gave us 60 days notice.. i found a new apt and I moved out 2 weeks early before the deadline, Am I supposed to get a refund?
ReplyDeleteHi: Take a look on the N12 Notice of Termination you received. You will see that it allows you to terminate the tenancy earlier than the date on the notice. Once you lawfully terminate you are entitled to a refund of the days of prepaid rent from the date you terminated. You are also entitled to a refund of your Last Month's Rent deposit if it was not used for the last month plus interest.
DeleteMichael K. E. Thiele
www.ottawalawyers.com
Thanks for such a great resource! If I request a record of our rent increases, is my landlord obligated to give me that information? Things have gone sideways and I'm worried they will ignore the request. I could review bank records but TD bank charges for that.
ReplyDeleteHi Nick: In short the answer is no. There is nothing in the RTA that requires the landlord to provide you with second copies of any rent increase notices--presuming of course that the landlord even has them. Corporate landlords will often have a complete tenant history/file but often times, especially with smaller landlords, tenant files are disorganized or only maintained year to year.
DeleteMichael K. E. Thiele
www.ottawalawyers.com
I began tenancy on october 1 2017 and am vacating november 29th 2019. My last months rent deposit was 1200 . How much interest is owed to me? I attempted the calculation and arrived at 1239.60.. is this correct?
ReplyDeleteHi: I'm sorry to say that your calculation is in error--otherwise what a fantastic investment. The calculation is as follows, on the assumption that you paid the Last Month Rent deposit on October 1 2017.
Delete2017: $1200 x 1.5% = $18.00 $18 /12months = $1.50 per month x 3 months=$4.50
2018: $1200 x 1.8% =$21.60
2019: $1200 x 1.8% =21.60 /12 months =$1.80 x 10 months =$18.00
Total interest owed is $44.10.
The percentage for 2017 was 1.5% and for 2018 & 2019 it is 1.8%. In 2019 you get 10 months interest (not 11) because the deposit should be used for your last month that is November (the 11th month).
Michael K. E. Thiele
www.ottawalawyers.com
My landlord did not give me interest on the rent deposit and i am past 12 months tenancy. What are my rights?
ReplyDeleteHi Sanjay:
DeleteIn 2019 the interest rate is 1.8% If your deposit is $1000 then you are entitled to $18.00 in interest. If your deposit is $500 you are entitled to $9.00. If the landlord increased your rent by the Guideline amount then the interest can be applied to the deposit so that your deposit equals the actual amount of the rent. If the rent has not been increased then the landlord can pay you the money or credit your rent ledger with that amount. If the landlord refuses to do anything about the interest then you could 1) deduct the interest from your rent, 2) file an application to the LTB for the interest.
Given the amount at stake it likely isn't worth taking action at the LTB. Ask the landlord to credit you or ask the landlord if you should just deduct the interest from the next month's rent.
Michael K. E. Thiele
www.ottawalawyers.com
Hi this is a wonderful resource thanks. I wonder if I could bother you with some help on the math? I started renting Sept 1st 2006 with $650+$650 to cover first and last month at the time and haven't been paid any interest over the years. I will be moving out at the very end of Dec 2019 this year. What would my interest be? Thank you for your time -=Scott=-
ReplyDeleteHI Scott: As the joke goes for many lawyers--I went to law school to avoid math! If you look up a couple of responses you will see I set out the percentages for the years going back to the transition in 2016/2017. It is a "simple" as opposed to a "compound" interest calculation from thereon. You lose a month of interest in December 2019. So, without warranting the accuracy of my math skills--my calculation is that you are owed $168.61 in interest to the end of December 2019 (presuming you use the deposit for December 2019).
DeleteMichael K. E. Thiele
www.ottawalawyers.com
sorry transition in 2006/2007
DeleteGood Day,
ReplyDeleteWe have been tenants since Dec 1, 2014 we are being assumed Nov 18, 2019. LMR was 1250. We paid 1295 for Nov rent to current landlord. We have some papers to sign that your LRM is being transferred to the NEW owners (landlord), amount of 1250. What happens to the interested earned? Does the current landlord need to pay us? Or does this amount (interest) get transferred to the new Owners? Why is is no mention of the interested mentioned in this Paper she wants us to sign? What happens? I come up with about 111.49 of interest. Do the new Owners also assume this interest. Will we get the full interest from Dec 1, 2014 when we eventually move out for the new Owners? Will they only be responable for the time they told ownership, Nov 18, 2019? Confused about this whole transfer but glad we do not have to MOVE.
Really the cost of moving does truly out weighs interest owed. On principal where should this interest be going.
Thanks and Kind Regards,
AJN, Mississauga, Ontario
Hi: My calculation has me coming up with interest owed in the amount of $109.58 so a small difference in our respective math. The law on LMR interest allows for a few options which unfortunately have the effect of making things murky. The RTA allows for the annual payment out of the interest while at the same time allowing the landlord to add the interest to the LMR deposit to bring it up to the lawful rent amount. In my experience neither is done in a very large number of tenancies. Where "interest" is dealt with it is usually with corporate landlords who are using specialized software for the landlord/tenant business. In those instances the interest is normally calculated annually and a credit is applied to the tenant ledger. If there is an automatic debit then the amount drawn is lower to account for the credit. Or sometimes there is simply a credit balance in the ledger. Regardless though the interest is dealt with on an annual basis.
DeleteIt sounds like the interest in your situation has not been dealt with annually. Further, your landlord has not increased rent by the lawful amount on an annual basis therefore the interest exceeds the shortfall between the amount on deposit($1250) and the current lawful monthly rent($1295). You are owed about $64.58. There is no value in leaving this amount as a credit to you as the interest is not compounded and it is just credit that isn't earning anything.
Being asked to sign papers respecting the deposit is likely a request from the purchaser of your property. The purchaser wants to know the extent of the LMR deposit liability. To that end, you shouldn't just sign the document being put to you as it is inaccurate or misleading. The document should indicate an LMR amount that is topped up by the interest owing (i.e. $1250 + $109.58 =$1359.58), or the document should indicate that interest has not been paid on the LMR since the deposit was received. While signing a document acknowledging that $1250 deposit is being transferred does not deprive you of your lawfully owed interest you can imagine that with the passage of time this becomes a headache to prove years down the road. The new landlord is likely to give you only the $1250 credit and pay interest from the date they assumed the property. They will argue ( I assume) that your signature supports their position when at the end of your tenancy you indicate that interest is owed. In fact, without getting credit for the interest they will say your LMR is short and you owe money---which will feel like insult being added to injury.
In my view, next month you should take the credit for interest owed to you. If there is someone with the landlord to speak with--follow up with them, make it clear what you are doing. Get a confirmation that they acknowledge rent paid in full for December 2019. Have a email or something in writing explaining the shortfall in December, just so you have a record in case the Landlord comes at you with an N4 (Termination for Non-Payment of Rent) in the future for the interest difference.
On the issue of principle---one of two things should happen 1) they pay you the interest annually, or 2) they credit your LMR and show it as increased on a document or on your ledger. The sums may be small but it is the law and proper accounting is how things should be done. Yes, getting to stay is a bonus given the cost of moving but this does not over-ride the obligation to simply pay what is owing on the LMR deposit.
Good luck
Michael K. E. Thiele
www.ottawalawyers.com
hi there, I paid my first + last month rent on Aug 2014 for $1600 per month (i.e last month rent deposit for that 1 year contract was $1600) then my landlord increased my rent almost every year according to the Guideline Interest, but he never asked me to put the extra increased rental amount to the last month's rent deposit. Now I am moving out this month and I am using my $1600 last month rent deposit to pay my current last month rent (though current rent has been increased to over $1700), in this case, should my landlord still pay me the interest for the last 5 years?
ReplyDeleteplease advise
thanks
Hi: So, if my math is correct you are owed $139.73 in interest to the end of November 2019 (with November 2019 being your last month). You will owe the lawful rent due for the last month of your tenancy (i.e. November 2019). If the "interest" of $139.73 equals the shortfall in the lawful rent owing (current rent minus deposit) then you owe nothing. If the interest exceeds the shortfall then you are owed some money.
Delete[Interest amounts I calculated are as follows: 2014(five months) $5.33, 2015 $25.60, 2016 $32.00, 2017 $24.00, 2018 $28.80, 2019 (10 months)$24.00.]
Michael K. E. Thiele
www.ottawalawyers.com
i been live as tennant since 2001 my landlord never pay me a penny on my deposit do think i cant get my money back.
DeleteHello. Could you please confirm my understanding using the numerical example below.
ReplyDeleteLease start date: April 1, 2016
1st year rent: $1,000
New rent commencing April 1, 2017: $1,015
2017 LMR interest is $15.17, being the sum of:
a) $1,000 x 1.5% x 3/12 = $3.75 from Jan 1 to Mar 31/17; and
b) $1,015 x 1.5% x 9/12 = $11.42 from Apr 1 to Dec 31/17
Thank you.
Hi: I am presuming that you paid a Last Month's Rent deposit on April 1, 2016, in the amount of $1000.00. This sum is in addition to the rent that you paid on April 1, 2016 of $1000.00. (Hence, you paid the landlord $2000.00 on April 1, 2016).
DeleteThe interest that is owed to you arises from the last month's rent deposit. That interest should be calculated on a calendar year, or portion thereof. You need to do the interest calculation for the year (or partial year) in which the deposit is held. If the landlord held $1000 (as a Last Month's Rent deposit) from April 1, 2016 to December 31, 2016, you would be owed 9 months of interest. In 2016 the interest rate was 2%. Hence, $1000 x 2% = $20 /12month = $1.67 x 9 months = $15.00. In the calendar year of 2017 the interest rate is 1.5% At the end of 12 months you would be owed a further $15 interest for the full year of 2017 or $1.25 per month. You would stop calculating the interest owed for the month in which the deposit was used to pay the rent (which presumably is/was the last month of the tenancy.
You seem to have mixed together the rent increase percentage and the interest on the deposit. While each of these calculations uses the same percentage interest rate you shouldn't otherwise mix the two concepts. They are each distinct.
Lastly, in your calculation you seem to be calculating a compound interest rate (interest on interest) as opposed to simple interest. The calculation should remain a simple interest calculation (no interest on interest).
Michael K.E. Thiele
www.ottawalawyers.com
This calculation method does not comply with the statute. The 12 months interest is calculated using the guideline rate in effect when the interest payment is due. No other calendarization is required.
DeleteIn this particular instance I wish I had better control over the blog layout in Blogger as your point is an interesting one (though I think you are incorrect). I saw you tried a second comment (at least I think it was you), I will try to find that and see if it publishes as a separate comment that I can respond to.
DeleteHello,
ReplyDeleteI am looking for a legal source of information that states whether a landlord can or cannot accumulate a rent increase if a rent increase under the guideline were not taken in previous years. Thank you for your help.
HI: The short answer is that they can't accumulate un-used rent increases. If you are looking for this confirmation as an affirmative statement in the statute then I think you will be disappointed. The Residential Tenancies Act (RTA) does not say "you can't accumulate" rent increases. However, the answer to your question still is in the RTA. Look at Part VII which is the Rules Relating to Rent. This part of the RTA operates on what it allows/permits as opposed to what it prohibits with respect to the amount of the increase. The increase that is permitted is set out in section 120 which establishes the "guideline". The guideline changes from year to year--but a landlord is limited for any one increase to the guideline amount--which percentage will always be less than an accumulated percentage.
DeleteThe idea of accumulated rent increases goes back many years when units were rent controlled and change of tenants did not matter. From my recollection, the notion of accumulating annual percentages ended with the introduction of rent de-control in the Tenant Protection Act--when landlords were permitted to set the rent to any amount between tenancies.
Michael K. E. Thiele
www.ottawalawyers.com
Hi There,
ReplyDeleteHow do you calculate interest owed on a commercial lease after 7 years and various rent increases - mainly at 5% per year? Does it apply to commercial at all?
Thankyou in advance!
Thanks!
Hi: Commercial versus Residential is like apples versus oranges. The two are not even remotely the same and the Residential Tenancies Act provisions relating to last month's rent interest have no application to a commercial tenancy.
DeleteMichael K. E. Thiele
www.ottawalawyers.com
Hi Michael,
ReplyDeleteThanks for all your help!
I took residency at my former apartment Sept 1 2018 and paid $875 + $1750 for the last 2 months rent. In 2019, my rent went up by 1.8% to $890.75 and upon moving out Dec 18 2019, my landlord returned $318.42. Is this correct or was I short changed?
Thank you!
HI: In order to figure this out you will have to advise how the tenancy ended. A December 18 move out date is unusual though technically possible as a tenancy does not have to run on the calendar month. However, given a start date of Sept 1, I presume your tenancy was on a calendar month and you just moved out early?
DeleteIf your tenancy ended with you giving notice to terminate, and presuming it was a lawful notice, you likely terminated for December 31. Perhaps the landlord asked you to leave early (why Dec 18)? When you gave notice to terminate did you apply the $1750 to November and December or did you pay rent all the way to the end of the tenancy with the deposit never being used? Further, did the landlord ever pay you interest on your deposit?
Sorry, for all of these questions but without the answers to them it isn't really possible to know whether you were shortchanged or not.
Michael K. E. Thiele
www.ottawalawyers.com
Hello Michael. Can you please explain something to me...
ReplyDeleteFor 2020, the rate is 2.2%. Is that 2.2% counted on your every month rent payment or is it not supposed to be based on a year basis then divided by 12 months in order to give you the proper amount owed for your monthly rental place?
The other question is, if a landlord increase the rental at 2.2 percent interest every month, is he/she not responsible to apply that same type of interest owning under same calculations to their tenants on the last month rental?
Hi: Thanks for this question as it makes one do some mental gymnastics. The increase is actually calculated as an annual rate on an annual amount of rent that is paid to the landlord. The math is current annual rent paid plus an annual percentage. Using $1000 monthly rent as the example. Annual rent is $12,000. Increase percentage is 2.2%. Total rent increase is $264.00.
DeleteThe Notice of Rent Increase Form (Form N1) represents the above in monthly terms. The form effectively takes the annualized amount and divides it by 12 which is $22.00. Which amount also happens to be 2.2% of $1000.00---which to the mathematically challenged (i.e. me) does make it seem like the 2.2% is monthly interest--which it isn't.
For the LMR deposit (Last Month's Rent), you are getting 2.2% annually on the amount held annually. That amount is only $1000 in total--meaning it is $22.00 per year. On a monthly basis you are earning $1.83 ($1000 x 2.2% /12).
If you want to read about the rent increase, the requirement to pay, and the manner in which the amount is calculated take a look at section 106 RTA and section 120 RTA.
All the above being said, I sincerely invite the mathematically inclined to post a comment that perhaps explains this more clearly!
Michael Thiele
www.ottawalawyers.com
Hi Michael! Thanks for providing this information. It's been really helpful. I was, until recently, unaware that tenants could claim interest on their LMR deposit. In my lease it stipulates that the landlord will pay the tenant 6% per annum on this deposit - does this percentage supersede the standard rates?
ReplyDeleteI've also already paid my second last month's rent. Is the landlord required by law to then reimburse me for the interest amount?
Thanks!
Hi: The amount of 6% was the rate of interest that landlords were for many many years required to pay. The rate did not change and that sum was incorporated into many standard lease forms. The rate of interest changed to track the amount of the annual guideline increase amount. This is not provided for in section 105(6) RTA. So your question is effectively whether a contracted interest rate (i.e. lease term) can over-ride the statutory interest rate. The answer, I think, lies in the wording of section 105(6). While you could understand a clause that prohibits paying less than a statutory amount does the RTA actually prevent paying more? Based on the wording of section 105(6) I do think the interest rate is specifically described and limited to the lawful amount (i.e. guideline). The wording seems to preclude any variation from the guideline amount. Because of this, I think that the lease clause giving 6% would be void as being inconsistent with the RTA---section 4 RTA makes clauses that are inconsistent with the RTA void.
DeleteMichael K. E. Thiele
www.ottawalawyers.com
Hello Michael,
ReplyDeleteWe have been renting since March 1, 2016 paying $1,800. For 2017 our landlord didn't increase the rent. In 2018 he increased the legal percentage and then in 2019 he came in person to talk to us and told us he was increasing our rent to $2,000. We told him that it wad not legal to do that, that we wanted something in writing to which he refused and said he was going to sale the house if we didn't agree with the increase.
It was a very stressful time for us so we decided to pay the increase. At the end of November 2019 he informed us of another rent increase for March 2020 and we responded that in order to agree we wanted to get the interest payment for our last month's deposit ($1,800) for every year and some kind of timeframe for them to build up the fence for the house which has to do with privacy and security concerns.
So for 2019 he actually increased our rent 9.15%, when calculating the interest owed for that year, should we do it using the percentage they used to increase our rent? Or do we still have to follow the legal 1.8%? Can we refuse this new increase considering the increase in 2019 was way above the legal percentage?
Can we request as a condition that they build the fence?
They want us to mail them the new cheques but I want to wait until having all the answers and information to protect our selves.
Thanks so much for your help!
Hi: At the present time your rent is not lawful. You don't say how the landlord increased the rent but I assume from how you set it out that the landlord did not serve you with a Form N1 Notice of Rent Increase (?). I presume he simply told you the amount or emailed it to you and you ended up agreeing and sending him cheques? If this is how it went then the rent amount is currently unlawful and you might want to consider bringing an application to get the illegal rent back. If your rent had been lawfully increased for 2018 and 2019 I calculate the total lawful rent to be $1865.38 which is 1.8% for each of 2018 and 2019.
DeleteYour agreement to pay does not make the rent lawful and given the threat to sell the house if you didn't agree would in any event void your coerced agreement even if it were possible. There is no "deeming" the rent valid in your context.
The interest that is owed to you is based on the lawfully held last month's rent deposit. While your view that interest should be paid at 9.15% follows the logic of the RTA (guideline percentage increase equals the interest payable) the application of what you are thinking is not based on anything legal. You're just making it up based on the landlord's own illegal charges.
You may, at this stage refuse any rent increase. The refusal would force the landlord to apply to the Landlord and Tenant Board if he didn't like your refusal and there you could challenge the lawfulness of the rent amount. It would, I think, put you in an overpaid position for at least one month's rent (perhaps closer to two).
As for the fencing and work to be done. If there is old falling down fence then call property standards and have them make an order. If there is no fencing then the landlord is not required to put up a fence as part of his obligations under the RTA. It is a matter for negotiations but if the landlord doesn't want to then he doesn't have to. If you can find other grounds to compel a fence to be built then great--but you haven't set out any facts here the support such action.
Good luck
Michael K E Thiele
ottawalawyers.com
Hello and thank you for the resource.
ReplyDeleteI have a tenant that paid a $750 deposit on November 1, 2010. I have increased the rent from time to time but the interest was applied to top-up the deposit. When calculating the interest owed, would I carry forward the interest with the rent charged similar to compounding interest? For example:
the first year (Nov and Dec 2010) [($750*2.1%) / 12] * 2 = $2.60
year 2 (2011) $752.60*0.7% = $5.27
year 3 (2012) $757.87*3.1% = $23.49
and so on...
Thanks for any help you can provide.
HI: Yes, I do believe that is correct. I base this view on section 106(6) Residential Tenancies Act (RTA) which provides: A landlord of a rental unit shall pay interest to the tenant annually on the amount of the rent deposit at a rate equal to the guideline determined under section 120 that is in effect at the time the payment becomes due." You mention that you are actually taking the step of topping up the LMR with interest earned which I presume means that you are also serving an N1 (Notice of Rent Increase) to increase the rent by the Guideline amount (section 120). On that basis you are permitted to require the LMR (deposit) to be increased to the lawful monthly rent amount. The authority for you to add the interest to the existing LMR is section 106(7). The key part of that section states that the amount from the interest payable that is deducted from the payable amount and added to the deposit is "deemed to form part of the rent deposit paid by the tenant". As the amount deducted from the interest payable is added to the deposit the character of that money is changed from "interest" to "deposit" and hence interest is payable on the interest in a way that seems similar to compounding interest.
DeleteThis seems a tad too complex for what it is (and the amounts involved) but the whole issue with interest is complicated because of all the sub-sections dealing with it in section 106 RTA.
A situation where I don't think you are paying interest similar to compound interest is if you don't specifically deduct interest from the amount payable to add to the LMR deposit. If you simply owe the tenant "interest" then this is an amount due that doesn't actually bear interest (no compounding). If you don't take the step of deducting an amount from the interest to increase the deposit then you need to pay the interest to the tenant. If you fail to pay the interest then section 106(9) permits the tenant to deduct the interest owing to the tenant from subsequent rent that is due. Query if a landlord doesn't take an overt step to apply the interest to the deposit whether they can do so after the tenant deducts the interest from a future rent payment that is due? What would the overt step be? I think a landlord would need to send a letter/statement when the interest is due advising the tenant that the interest has been applied to the LMR deposit. Failing such notification, the landlord is simply indebted to the tenant and the tenant can deduct the interest from future rent. If the landlord then wanted to, he could force a top up of the deposit under section 106(3) RTA. That being said, I don't see how the landlord could recover the rent that was lost through the tenant's deduction of the interest from rent owing.
It should be noted that for the most part, notwithstanding the complicated section on LMR interest, the amounts are nominal and there isn't exactly a lot of litigation on the issue.
Michael K. E. Thiele
www.ottawalawyers.com
I have been living at my residence for approximately four years and annually the landlord increases the rent per the rent increase guidelines and has asked me to pay the increase amount in order to update the rent deposit to the new annual increase amount, which I have done. Am I to understand that I could not pay the top up as they essentially owe me the same amount in interest or do I have to wait until I terminate the lease to claim the interest?
ReplyDeleteHi Amy: The RTA does allow a landlord to request a top up of the Last Month's Rent deposit as the monthly rent is increased. The amount of the increase is a percentage amount known as the guideline amount. This percentage (set every year) is the same percentage that must be paid on the LMR deposit. Therefore, your annual interest can be applied to the LMR deposit to keep the LMR deposit equal to the lawful rent.
DeleteIf you have been paying the additional amount to increase your LMR deposit but are not getting paid the LMR interest then you are owed money. However, before jumping to conclusions, ask the landlord to provide a copy of your rent ledger. Some landlord's use an accounting system that automatically credits the tenant ledger (annually) for the LMR interest. Has your rent ever adjusted (one month a little less) to account for the credit? If not, then is there a credit balance on your ledger (i.e. shows a credit owed to you?).
If it simply appears that you have paid increases to top up the LMR and have never been paid interest then you can ask for that amount immediately. There is no need to wait to the end of the tenancy. In fact, absent cooperation from the landlord you could deduct the interest owed to you from future rent.
Good luck
Michael K. E. Thiele
www.ottawalawyers.com
If you have received Last Months Rent cheque, but never cashed it in, are you still required to pay for the interest, because technically the tenant still has the cash pocketed.
ReplyDeleteHi: From time to time I think I've heard it all and then I get a quirky question like this. I'm not aware of any cases directly on point and certainly the Residential Tenancies Act doesn't have a section dealing with this particular circumstance though one could read section 106 as requiring interest to be paid--even if the deposit cheque isn't cashed--because the landlord required the deposit to be paid. The triggering obligation to pay interest is the requiring to pay a deposit, which if paid (whether the cheque is cashed or not), is on the wording of the section (I think) enough to impose an "interest" obligation.
DeleteBeyond that, if I had to pick a side to argue (presuming I would want to "win") I think the argument requiring interest to be paid is the easier argument to win. You have the point made above on the wording of section 106 and to that I would add that even though you haven't cashed the cheque you have nevertheless deprived the tenant of the use of that money. The uncashed cheque does have a sum sitting in an account to cover that cheque when cashed. The tenant is not at liberty to use this money as to do so would risk the cheque going NSF. On that basis, I'd argue that you are indeed holding the deposit--it's just that you're holding it in the tenant's account.
Thanks for the question.
Michael K. E. Thiele
www.ottawalawyers.com
Hello Michael,
ReplyDeleteWhen a tenant's lease started July 1st, 2019 and he is moving out on June 30, 2020 and he used his deposit on the June rent, Is the landlord required to pay interest on the deposit even though he didn't held the deposit for the full 12 months period? Or landlord will have to pay interest for the 11 months that the deposit was held?
Thank you!
Hi: The landlord would pay interest for the period that the deposit was held. If it was paid July 1 and used the following June, then the landlord would pay 11 months of interest using the annual percentage rates for each year (July to Dec and Jan to June). 1.8% in 2019 and 2.2% in 2020.
DeleteMichael Thiele
www.ottawalawyers.com
Hi, Michael,
ReplyDeleteWe have just given our landlord our 60 day notice that we are vacating. We have been in this same house for 23 years. I asked about the interest on the last month's rent as he has our last month's rent cheque.
He says that because he hasn't raised the rent very many times over the time we have been here that the rent increases would negate the interest that he owes us and that he suggests we come to a gentlemen's deal and forsake the compound interest on the last month's rent. I know that it's not compounded I just want the interest on the first amount we paid which was $875. We now pay $1035. While I understand he has not raised the rent often that was his choice and we have never been late on a payment.
He wants me to show him the website that says he has to pay it. He also says that the last month's rent is usually used to pay for damages done to the house over the years. He says forget the wear and tear there are always repairs to be done. He is a landlord and only fixes something when it has actually gotten to the point of no return, like faucets that burst even when we have asked him to do some maintenance on them to avoid such a situation. Or having the black mold in the basement removed.
He lives 5 hours away and we are the ones who have been responsible for having maintenance done and taking time off work when people needed to be in the house for repairs.
So, how do I deal with this battle. He says he is not going to pay the interest because he didn't raise the rent every year when he was entitled to.
Any help or advice you could offer would be appreciated.
Sue
Hi Sue:
DeleteI suppose you could direct the landlord to this blog but I imagine he won't like what he reads so will discount it. In that case, refer him to http://www.sjto.gov.on.ca/ltb/faqs/ (Cut and paste into your browser). This link will take you to the LTB website, to the FAQ page. Scroll down to Rent Deposits and other Charges. The third FAQ is "Does a Landlord have to pay interest on a rent deposit". If you landlord does not want to believe this webpage then he won't be willing to believe anything.
What is a bit more interesting about your situation is that you will have several years within your tenancy where the interest was 6% and not the guideline amount that it now is. This means that the interest will have exceeded the lawful amount of any rent increase (meaning you're owed). Scroll up through the comments on this article and you can see references to interest rates---I believe it was 6% up to 2007 (though I've noticed a typo in one of my answers indicating 2017). You don't say your exact start date but roughly I think you will be getting 6% from 1997 to 2007 which is $52.50 per year. After 2007, you will be entitled to varying amounts based on the annual guideline.
Your landlord is mistaken in a few other ways. The rent increases that he "doesn't take" don't cancel out the interest that he has to pay. In the early years of your tenancy this isn't even close to accurate. In the years when the interest rate matches the guideline rent increase amount then the amount is indeed cancelled out IF the rent is increased. If the rent isn't increased then the interest is payable to the tenant. The interest can only be added to the deposit if the monthly rent is lawfully increased (in which case the interest equals the increase and no money changes hands).
Your landlord is further mistaken when he says LMR deposits are applied to damages. That is crazy wrong. Is your landlord suggesting that you have to pay rent for the last month you're there because the deposit will be applied to "damages"? That is simply nonsense. The law is that the deposit can only be used for rent--nothing else. The interest can be added to the deposit to make the deposit equal the lawful rent--but otherwise it has to be paid to the tenant.
Note of course, you do owe the landlord the lawful rent for the last month of your tenancy. Your deposit is "short" because the rent was increased over the years (presumably lawfully). Therefore you will have to top up your deposit to cover the actual rent for your last month. I imagine you will do that by simply taking the top up from the interest that you're owed.
The "maintenance" is laughable--presuming you've treated the way your question suggests. Any wear and tear after 23 years is a complete write-off for which it is highly unlikely that you could ever be liable. The vast majority of things in the property have a "useful life" shorter than your tenancy. If you're interested in reading and seeing the "useful life" chart search this blog or go the regulations under the RTA--the chart is at the end of one of the regs.
So, steps to take to get the interest? You've given the 60 days notice--do you owe 2 months of rent? Or do you only owe the last month because you've already paid for half the notice period? If you haven't paid--don't. Deduct it from what you owe. If it's too late and he has the deposit for the last month and you owe nothing then you will need to file an application to the LTB to get an Order. Surprisingly, now is a fantastic time for you (as a tenant) to file an LTB application. The only cases the LTB is actually dealing with are tenant applications--so you should get heard quickly via telephone hearing. Before filing, of course, take time to do the math to figure out what you're owed to make sure it is worth your time to chase it.
Good luck
Michael K. E. Thiele
www.ottawalawyers.com
Hi Michael,
ReplyDeleteI'm hoping you could tell me if I'm calculating this correctly? My rent is $1,100 and I was asked to pay first and last 3 months upfront (cheque given for $4,400). Lease was May 1, 2019 to Apr 30, 2020. I went month-to-month thereafter, but used the deposit to cover what was owed Feb, March, and April (Had given notice to move but then Covid happened and they let me stay on monthly for a bit longer). I was thinking...
2019: $3,300 x 1.8% /12 months = $4.95 x 8 months = $39.6
2020:
$3,300 x 2.2% /12 months = $6.05 x 2 months (Jan, Feb 3rd last month)
$2,200 x 2.2%/12 months = $4.03 x 1 month (March, 2nd last month)
$1,100 x 2.2%/12 months = $2.02 x 1 month (April, last month)
Final interest owed on deposit being $57.75
Please correct me if I'm wrong, I am terrible with math!
Thank you,
Rinne
Hi Rinne:
DeleteThe applicable percentages are 1.8% for the year 2019 and 2.2% for the year 2020.
Presuming an LMR equal to the monthly rent of $1100.00 you would be entitled to interest in 2019 equal to 8 months. Annualized the interest is $19.80 and for 8 months it is $13.20. I think you can get a slight variation by calculating the daily interest value and multiplying this number by the number of days versus the number of months (but that isn't worth the time).
The interest on the $1100 for the year 2020 is $24.20. You applied the LMR to April 2020 hence you are entitled to 3 months which is $6.05.
By my numbers the total interest owed is $19.25. This presumes that your Notice of Termination remains valid and enforceable and that the tenancy is not terminated. Given that you continue to be in the unit it is doubtful that your tenancy actually is over. If your tenancy continues (at law) then the interest being earned continues. The LMR was then not applied to April 2020 (because legally it can only be applied to the Last Month). You would therefore be in arrears for April 2020 but you are then carrying an LMR to your credit.
As for the extra two months of deposit applied to February and March 2020. It is most likely (though not for certain) that these were illegal deposits. As an illegal deposit it does not follow that interest is paid on these as if they were a legal deposit. Certainly you can go ahead and claim interest but I think it is a mistake to think about the illegal deposit in the context of a lawful LMR. For an illegal deposit (if it is) why would you presume to limit the interest rate to the AGI amount? What if you borrowed the deposit money and literally incurred a higher rate of interest to be able to give that to the landlord---what if you took a credit card advance to make the payment? Shouldn't you be able to claim interest at the higher rate? Illegal deposits, in my view, should not be treated as equivalent to a lawful LMR. Whatever real damages flow from demanding an illegal deposit should be the measure of a tenant's entitlement.
Good luck
Michael K. E. Thiele
www.ottawalawyers.com
Thank you very much for the detailed response and for correcting my math. Take care :)
DeleteGreat info! Thank you for this post.
ReplyDeleteI'm a multi-year tenant, and the owner (i.e., landlord) has never increased the rental amount. Does the "landlord" still need to pay interest for those years even if there was no rent increase? (i.e., If the landlord does not take an annual rent increase or does not take the full amount authorized there will then be an interest amount owing to the tenant.)
G-
HI Greg: The short answer is "yes". The landlord owes interest on the amount of the last month's rent deposit that is being held regardless of whether the monthly rent is increased.
DeleteMichael K. E. Thiele
www.ottawalawyers.com
I need some help trying to calculate my rent interest that is owed to me I moved in May 2010 and paid 925 until January 1 of 2018 then from January 1, 2018 to March 1 of 2019 I pay 1068.90Then on April 1, 2019 till March 1, 2020 I paid 1088.14 and then from April 1, 2020 until June 1, 2022 I paid $1111.90 how much with my landlord owe me in interest as this has never been paid to me
ReplyDeleteWhat needs to be clear is what is the amount of your last month's rent (LMR) deposit? Presumably (but not necessarily), the LMR is equal to the amount of your rent. Hence in May 2010 if your rent was $925 your LMR is likely $925 too. The law does not require the landlord to charge you an LMR--so please make sure that you did pay one. The interest is payable on the LMR and not the rent that you paid. To figure out your interest owing for 2010 (and presuming you paid an LMR), multiply $925 by 2.1%. That gives you the annual amount of interest. Divide that number by 365. That gives you the daily interest. Then figure out how many days there were between the date you paid the landlord the LMR and December 31, 2010. That is the interest owed for 2010. The question then is whether the interest from 2010 was added to the LMR deposit (arguably it couldn't be as the deposit would then exceed the lawful rent). On that basis I would calculate the interest owing in 2011 by multiplying $925 by .7%. That is the interest owing for 2011. Then you add 2011 interest to the 2010 interest and that is what you are owed. For 2012 you multiply $925 by 3.1%. That is the interest owing for 2012. Add the three years of interest together and that is what you are owed. You continue that math all the way through until the present. Ultimately, when you terminate your tenancy you do not calculate interest for the month to which the deposit is eventually supplied. Arguably, you are missing interest on your interest--which is what is calculated if the annual interest was added to your LMR so that your LMR tracks the annual rent increases. You could, for the sake of argument and positioning, assert and calculate the interest for each following year by adding the interest earned to the LMR for each subsequent calendar year (on the basis that it was not paid to you).
DeleteI received a comment as below and a follow up comment that disappeared into Blogger somewhere. Anyway, the comment is really interesting as it challenges the method of proper rent interest calculation. If I paraphrase the commenter's supposition correctly, the argument is that a landlord only pays interest on the deposit every 12 months at the anniversary date of receiving the deposit and then pays interest at the prevailing rate at that time. Hence, the commenter argues (I think), that if a deposit was received on November 1 of a prior year that on October 31 of subsequent year the landlord would pay interest at the prevailing rate in the subsequent year. The commenter would not calculate any separate interest for the year in which the deposit was received (i.e. for the month of November and December) at the prevailing rate in that year. Presumably he isn't calculating interest for November and December because the deposit at that stage has only been held for 2 months. For the commenter, the trigger for payment is holding the deposit for 12 months. If that is a fair characterization I will respond (commenter--if not please join in), but first, here is the comment received:
ReplyDelete"This calculation method does not comply with the statute. The 12 months interest is calculated using the guideline rate in effect when the interest payment is due. No other calendarization is required."
The commenter was disputing the calculation method I showed doing a partial calculation for the partial year and then the balance calculation for the following year. In the subsequent comment from him (now lost) he rhetorically asked if the legislation had changed. It has, but not in the way he was thinking.
I stand by my calculation method--I think it is correct. The LTB, arguably, puts forward a position between my position and the commenter's position--but that is a staff proposition and not caselaw or anything authoritative. As far as a I know (and I've looked) there are no decisions that establish the formula for interest calculation on the deposit.
So why do I calculate as I do? I think it is supported by the plain wording and grammatical structure of the statute. Further, I think the original interest section that was modified to the current wording, demonstrates clearly that how I calculate is indeed the correct way. Here are the two versions of section 106 (old & new):
(6) A landlord of a rental unit shall pay interest to the tenant annually on the amount of the rent deposit at the rate of 6 per cent per year (OLD)
Interest
(6) A landlord of a rental unit shall pay interest to the tenant annually on the amount of the rent deposit at a rate equal to the guideline determined under section 120 that is in effect at the time payment becomes due (CURRENT)
DeleteThe wording of the section does not impose the interest obligation if the deposit is held for 12 months. This is most evident from the old version. The section imposes an obligation to pay interest--annually. This does not mean that the deposit needs to be held for 12 months. I don't see that in the section. I see a once a year obligation to pay interest. The interest percentage is an annualized amount--as in X% for the year. You could break down the X% (X being the number for that particular year) into a monthly percentage or daily too (much harder math). I see this as a landlord being obliged to pay interest on any deposit amount held in any calendar year.
The commenter's math would have the obligation to pay interest being dependent on the deposit being held for 12 months. That would mean that no interest would ever be payable on a deposit held for a standard fixed term lease of 1 year. If the tenant terminated for the end of the fixed term (i.e. served an N9 60 days before end of term), the LMR would be applied to month 12, meaning no deposit would be held for 12 months--and on the commenter's math no interest would be payable. What then of the interest payable to a tenant if the deposit was held for 17 months? Imagine a fixed term lease of 12 months, continues month to month from month 13 to 17 and then is properly terminated on notice. If the interest was paid after month 12 what happens to interest that was theoretically accruing in months 13 to 17? Is there nothing payable unless the tenancy is at least 24 months? That does not make sense to me.
In my view, you pay interest in the partial year of receipt at the end of the year. You then calculate the interest for a partial future year from January to date of termination. You do the math then (when the tenancy terminates) because it is convenient to do so. But, I suppose, the obligation to pay the interest on the partial year is only an annual obligation not an obligation to calculate and pay at lease termination.
Anyway, I'm certainly ready to be shown otherwise or with an authority that legally states what the section means---certainly the Divisional Court and Court of Appeal have interpreted sections in ways that surprised me in the past and presumably they will teach me again in the future!
Hello,
ReplyDeleteHow would I calculate the interest rate to be received if my rent was not under rent control building? My rent went from $1950/month in 2021 May to $2100/month in 2022 May, which is way more than 1.2%.
Will I be calculating the interest rate based on the 1.2% or based on the percentage of rent rate increased? And no I did not receive any I interest on my LMR and was not asked to top up my LMR with the rate increase. I already gave them the notice to end tenancy and wanted to figure the amount of interest I should be expecting. (I will be paying the top up amount for last month's rent but wanted to see if I didn't have to if the interest amount was similar). Also, I had paid security deposit for keys when i first moved in, would that be part of amount that can accumulate interst as well? Thank you!
Section 106 (6) RTA is the section that imposes the requirement to pay interest and it is the section that sets the rate. It states:
DeleteInterest
(6) A landlord of a rental unit shall pay interest to the tenant annually on the amount of the rent deposit at a rate equal to the guideline determined under section 120 that is in effect at the time payment becomes due. 2006, c. 17, s. 106 (6).
There is nothing that I am aware of that adjusts the interest rate to follow the percentage increase that you paid on your rent ( presumably in a partially exempt unit). The logic of your question/comment is a good one though. All other tenants have the possibility of their last month's rent deposit being kept level to the actual monthly rent by applying the interest to the deposit held. On the reading of s. 106(6) you will only get interest equal to the Guideline increase percentage in place for the year and not the actual percentage increase that you did receive on your Notice of Rent Increase.
Hi - thanks for the explanation. As for the year 2021 where there was no rental increase, does the rental deposit really earn no interest for this year? Seems strange considering if it was in the bank it would earn some kind of interest, albeit very minimally.
ReplyDeleteCan you remember the year 2007? I'm struggling to at the moment, but what I recall is that interest rates had been rather low--plunging actually, for several years. Canada Savings Bonds were becoming a joke, savings account interest rates were zero or getting there. The era of super low interest rate mortgages was starting (I'm not sure how, but I think the start of that kind of low interest lending has brought us to today's housing crisis) and changes were being forced as a result of low to no interest being paid on savings---i.e. law foundation of Ontario grants to law libraries, Legal Aid, that were funded from interest on lawyers' trust accounts.
DeleteThe fact of low interest rates was not lost on the Landlord and Tenant Law world. Up to the end of January 2007, the interest paid to tenants on their deposits was fixed at the statutory amount of 6%. It had been this amount since the separate regulation of residential tenancies in the 1970's. In 2007, the amount of 6% was deemed outrageously high relative to current rates and the legislation was changed--in the new Residential Tenancies Act. The interest rate was made variable and tied to the Annual Guideline Increase. The idea being that the interest rate remains reasonable relative to interest rates generally. That seems to have worked for a while.
Along the way, the AGI was capped to a maximum of 2.5%. No harm or foul on what tenant's are paid on their deposit relative to that 2.5%. However, times change, and with interest rates pushing up and it being relatively easy to get more than 2.5% in a high interest savings account landlords can now actually earn on the deposit in excess of what they have to pay on the deposit. Granted, the amounts are razor thin and probably consumed by the administrative cost but that will change if interest rates continue to rise. For the individual unit it may not matter--but think of the amounts at play if there are hundreds of units in a building. The amount may indeed be more than nothing.
And to your question, yes, as far as I can tell--for 2021 the amount is zero. Curiously, though, if you wanted to push the envelope on getting paid something for the 2021 deposit, and presuming your tenancy started in 2021 (but not January), then you could argue that interest is payable based on the LTB interest calculation method--as silly as that seems. As per LTB, interest is paid at the rate outstanding at the time the interest payment is due. Hence, if you paid a deposit in February 2021 onwards, you would get the interest percentage in 2022.
The rental agreement between me and the tenant began in July 1, 2022. He paid the last month rent last year and I need to pay the interest next month. Should I calculate using the 2022 percentage (1.2%) or 2023 (2.5%)?
ReplyDeleteThe Landlord and Tenant Board will tell you that the correct percentage to use is 2.5% This is because you use the interest rate in effect on the date that the interest became due. According to the LTB, interest is only payable when the deposit is held for 12 months. Ultimately, there will be a year where you do not pay interest for the deposit that is held for 11 months (or less) and the LMR is applied within the notice period given.
DeleteI have explained elsewhere that I think the LTB is wrong on how it explains the calculation of LMR interest. But until someone cares enough to make an issue of it at a hearing and to "argue it" you have this (in my view) weird LTB method that seems to disregard the point of LMR interest. In my view, you pro-rate the calculation of interest for the calendar year at 1.2% in 2022. I think the requirement to pay interest annually (in section 106(6) RTA) on the deposit means that in every calendar year you pay interest on the amount held during that calendar year and for the period that it was held. You don't pay a years worth of interest if the deposit was held for less than 12 months, you only pay for the months the deposit was held. The Landlord and Tenant Board seems to interpret the requirement to pay interest annually (s. 106(6) RTA) as meaning you pay interest every 12 months that you hold the deposit. I think this leads to a silly outcomes and periods of time that interest is required to be paid even when the interest rate was zero for most of the time the deposit was held and further leads to outcomes where zero interest is paid because it was held for less than 12 months. Under the LTB math, a tenant who enters into a 12 month fixed term lease, pays a deposit, and gives notice to terminate at the end of that fixed term would get zero interest as the deposit is applied to the 12th month and hence the deposit was not held long enough to draw interest. I think this is wrong on the wording of the RTA (s. 106) and it seems to defeat the intention of the legislature which, I think, clearly intended for landlords to pay interest for the time they hold the deposit.
Tenancy started Aug 1,2021. Rent $1357. Increase in 2022 - $16.28, interest on LMR - $9.45. (Tenant owes $6.83)
ReplyDeleteIncrease in 2023 - $34.33, interest on LMR - $26.82 (Tenant owes $7.51)
Are these numbers correct?
Thank you!
Tenancy started Aug 1,2021. Rent $1357. Increase in 2022 - $16.28, interest on LMR - $9.45. (Tenant owes $6.83)
ReplyDeleteIncrease in 2023 - $34.33, interest on LMR - $26.82 (Tenant owes $7.51)
Are these numbers correct?
Thank you!
Does the interest payments start from the day I received the deposit from the tenant or from the day the lease started? (Received deposit 2 months before lease start date). Is there a section in the RTA specifying this?
ReplyDeleteBelieve it or not I don't see an answer to this question in the RTA. It seems to me that the closest we get to guidance is in section 106. It states:
DeleteInterest
(6) A landlord of a rental unit shall pay interest to the tenant annually on the amount of the rent deposit at a rate equal to the guideline determined under section 120 that is in effect at the time payment becomes due.
The key word is "annually". Does that mean annually from the date that the deposit was received or from the commencement of the tenancy? And does it mean every 12 months from the date that the deposit was received or does it mean once a calendar year ending on December 31. I don't see anything definitive in the RTA and as I have indicated elsewhere in this blog, I think the LTB does an odd calculation by only requiring payments for deposits held for an entire 12 month period and no interest being required for a partial 12 month period.