Are there Time Limits when tenants apply for Interest Owing on their Last Month's Rent Deposit?

How many years of unpaid interest can a tenant claim on the Last Month’s Rent Deposit?  The Ontario Landlord and Tenant Board's T1 Form allows a tenant to apply for LMR interest arrears.  That form implies a time limit of 1 year from the date the money was due to the tenant and not paid by the landlord.

The question for this article is to explore if a tenant can require a landlord to pay more than one year of interest owed if the landlord has failed to pay the interest as required under the Residential Tenancies Act.   The issue, and why it is even a question, is that the Residential Tenancies Act is rather thorough in limiting the time in which a tenant can bring an application against a landlord.  The standard time limit (or perhaps I should say the most common time limit) that the Residential Tenancies Act imposes on tenants is one year from the date of the incident or breach by the landlord–meaning a tenant needs to file an application to the Landlord and Tenant Board within the one year following the incident/breach failing which they have very likely lost the right to file an application for any relief or compensation.

How does this question matter for tenants?   It is extraordinarily common for landlords to require a tenant to pay a last month’s rent deposit prior to the tenant entering into possession of the rental unit.  The Last Month’s Rent (LMR) deposit is legally collected and can not exceed one month’s rent as per section 105 & 106 Residential Tenancies Act.

The LMR is mandatorily held by the landlord to be applied to the last month of the tenant’s tenancy.   It is not a slush fund to be applied to ongoing rent and refurnished in subsequent months.  It may only be applied to the last month of the tenancy.  Note, this does not mean the last month of a fixed term lease but instead the actual last month of the tenancy.  In Ontario a residential lease continues automatically on a month to month basis after the expiry of the fixed term lease.  Hence, the LMR continues to be held, even after the expiry of the fixed term lease into the period of the month to month lease.  Only when the tenancy agreement is finally and ultimately terminated does the LMR get applied.

It has been a feature of Ontario Residential Tenancy law since January 1, 1970, that a landlord is only permitted to require a security deposit in the form of a last month’s rent deposit.   From January 1, 1970, a rent deposit (equal to no more than one month’s rent) that was collected by the landlord earned interest at the rate of 6% per annum and had to be paid to the tenant annually.  Prior to January 1, 1970, Ontario law allowed landlord’s to require other deposits from tenants including the most common type of security deposit for damages.  After January 1, 1970, it became illegal to collect damage deposits from Ontario residential tenants covered by the various residential tenancies laws to the present day (year 2023) under the Residential Tenancies Act.

The fact that a landlord is required to pay a tenant interest on the LMR (security deposit) does not mean that the deposit is actually ever paid.  Many years of a tenancy often go by during which a landlord simply never pays and the tenants forget (or don’t know) to ask for the interest money owed to them.  So a little math to put the interest question in context:

YEAR AMOUNT of RENT DEPOSIT    INTEREST OWED

2019 $1250.00                         $22.50

2020 $1250.00                         $27.50

2021 $1250.00                         COVID YEAR–no interest

2022 $1250.00                         $15.00

TOTAL OWED to tenant                 $65.00

So, you can see that in a tenancy that is 4 years in length (and ongoing) a tenant has earned $65.00 in interest.  The interest calculation for each year is a simple interest calculation and the percentage used is the Annual Guideline Interest amount published annually (this is the legal percentage amount that the Ontario Government allows a landlord to increase rents for units that are not otherwise exempted from rent control).

If a tenant hasn’t demanded payment can how many years of rent arrears interest can they claim?  Suppose for the purposes of our illustration that a tenant has discovered on March 20, 2023, that they haven’t been paid any LMR interest since their tenancy began on January 1, 2019.   Does the general one year time limit apply?  If so, arguably the tenant’s claim is limited to the interest of $15.00 only—because this is the amount that became payable within the past 12 months.   If a general one year time limit does not apply, then the full amount of $65.00 is payable to the tenant regardless of when the interest is demanded or deducted from future rent.

Below I have listed the various time limitations and references to various sections of the RTA that establish the time limits on tenant applications.   The time limitation section that seems most likely to apply is that in respect of money illegally collected or retained by a landlord under section 135.  That section allows a tenant to apply for the landlord to pay any illegally retained or collected money.   One may be forgiven for thinking that a landlord is illegally retaining money when they breach the mandatory requirement (section 106(6) RTA) to pay interest, annually, to the tenant.  Further, the failure to pay interest is actually an offence (section 234(e)) under the RTA and therefore it would seem to clearly be an illegal action to which section 135 RTA would apply.

The Application form that tenants use for a rebate of money owed to them by a landlord is the T1 Application.    The current version of the T1 Application and the Instructions on the LTB website make no reference to the section 135(4) RTA time limitation of one year (even though it is clearly provided for in the statute).  It is clear that the T1 Application clearly is the contemplated form under section 135.  Interestingly, it is the T1 Form that provides for a mechanism to claim from a landlord the LMR interest owing (it is Reason 5 T1 Form).   Does it follow then that there is a 1 year time limit on an application for LMR interest to be paid to a tenant?

The answer it appears may be found in an appellate authority–and the answer is “no”.  A tenant is entitled to the entirety of interest owed whether or not an application is brought within 1 year.   The Divisional Court in 626114 & 626115 Ontario Ltd. v. Tirado, 2005 CanLII 35461 (ON SCDC), determined that the one year limitation period as provided in the Tenant Protection Act did not apply. [the section remains the same in the current RTA].   The Ontario Landlord and Tenant Board have followed this appellate authority under the current Residential Tenancies Act in D.D. Acquisitions Partnership v. Savage, 2022 CanLII 80924 (ON LTB).

What is interesting about the Tirado decision is that the Court recognizes that a tenant may deduct multiple years of interest owed (ignoring the 1 year time limit) when the tenant is deducting the interest from a future rent payment that is due to the landlord.   That isn’t quite the same, however, as applying to the LTB for an Order requiring the landlord to pay the money when (for example) a tenancy has ended an no more future rent will be paid.

The Court in Tirado does seem to recognize the limitation problem on application (using a T1 under section 135) when it approves of reasoning in another Ontario Rental Housing Tribunal case [Hash v. Retirement Life Communities, [2000] O.R.H.T.D. No. 12] wherein the Tribunal held that the one year limitation period should not apply to interest payments.   How that reasoning overcomes the provision of section 135 remains unclear.  Nevertheless, the weight of the appellate authority now is that a tenant may apply for the entirety of LMR interest owed irrespective of the time limit in section 135 RTA.  

VARIOUS TIME LIMITATION SECTIONS UNDER THE RTA FOR TENANT APPLICATIONS

Tenant applications against landlords at the Ontario Landlord and Tenant Board (under the Residential Tenancies Act) are generally time limited to one year.  Tenant’s Rights (T2) and Tenants’ Maintenance Applications (T6) are prescribed/limited by section 29(2) RTA to one year.  A bad faith application is time limited to one year by section 57(2) RTA.  A denial of first refusal rights (under an N13) attracts a 2 year limitation at section 57.1 RTA.  Unreasonable denial of sublet or assignment applications are time limited to 1 year in section 98.  Evicting an over-holding sub-tenant requires action within 60 days after the end of the sub-tenancy (section 101(2) RTA).  An application respecting a rent increase agreement that is breached attracts a 2 year time limit in section 122(2) RTA.  An application respecting the reduction or discontinuance of a service or facility as a one year time limit (section 130(5) RTA).  An application to recover money illegally collected or retained, which includes the compensation obligation on N12's and N13's, is limited to one year after the money was collected or retained section 135(4) RTA.