More On Rental Deposits

March 5th, 2014 · 6 Comments · Kids & Family

French House In The Hills
A Guy Taking Pictures / Foter / CC BY

My most popular post is about rental deposits. Considering that it’s a simple subject, I’m surprised there is so much controversy and confusion regarding the rules. Today I got a question from a tenant about this subject and so I’ll take another kick at the can. Hopefully I can add some clarity to Ontario rental deposits.

Reader Question

We looked at a place paid a deposit and signed a lease for a rental unit for June 1st. We signed Feb 28. Something major has come up an we may not be able to move. Are we able to break the lease?  Can we assume our deposit is non refundable?

Rachelle’s Answer

The answer to your question is two part because the law has changed somewhat. In the past a rental deposit would be automatically forfeit and the landlord could rerent the unit upon hearing that the tenants were refusing possession. However, a landlord cannot collect double rent for a unit so if the unit is rerented the deposit must be refunded.  This is a decision made by the Court of Appeal for Ontario Musilla v. Avcan Management Inc

Specifically this section here is very precise…

[10] In particular, we agree with the following observation [at para. 22]:

When one looks at the words of s. 107(1), it is notable that the landlord is to return the deposit if vacant possession is “not given” to the prospective tenant. The words “not given” suggest that it is the refusal or inability of the landlord to provide the premises that triggers the obligation to return the deposit to the prospective tenant. In the present case, however, it was the tenant’s action in refusing to take the unit that prevented her from taking possession, not any act of the landlord.

[11] This interpretation accords with common sense and fairness. To permit a tenant, who is legally obligated to take possession, to regain a rent deposit where the landlord has done everything it was required to do in order to give possession would render meaningless the concept of a rent deposit to secure the tenant’s obligation to pay rent.

[12] However, we would add one qualification to what the Divisional Court said about a landlord’s ability to retain a rent deposit.

[13] Sections 105(1) and 106(10) of the Act provide that a landlord may only take a deposit as security against the payment of the last month’s rent. The landlord may not take a deposit to secure any other obligation. Thus, if a tenant breaches a tenancy agreement and the landlord, in accordance with its obligation to mitigate its damages, is able to re-rent the premises without suffering any loss of rent, the landlord is not entitled to retain the rent deposit. The landlord cannot realize double payment by use of a deposit, nor can it apply the funds to any other purpose.

How I would deal with this situation is like this…

  1. Inform the landlord that you cannot take the place as soon as you can in writing.
  2. Apologize for backing out of the contract.
  3. Ask for your deposit back.
  4. Inform the landlord of their obligations by letting them know of their legal obligations by giving them a copy of the legal decision in Court of Appeal for Ontario Musilla v. Avcan Management Inc
  5. Don’t act like they should know, no one is going to spend their spare time looking for bizarre rulings on Canlii (Ok, one person)
  6. Give them a chance to rerent the unit.
  7. Monitor if the unit is being advertised where you found your ad.
  8. Wait for money
  9. June 1st 2014 if you did not get any money back go check the unit.
  10. If they are legitimately trying to rerent the unit and the unit is not rented June 1st tough luck to you.
  11. If the unit is occupied or they are not trying to rerent the unit then threaten them with legal action. The earliest date you can do this is June 2nd so be nice before this date.
  12. Keep fingers crossed.

Best of Luck

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6 Comments so far ↓

  • Mo

    Hi Rachelle,

    I rented a condo for almost 5 years and paid a $50 fob key deposit to the property management company when I moved in. It’s been a month since I moved out and I’m told I can’t receive my deposit back until two members of the board of directors sign a cheque. Is this a normal length of time to wait for the return of a deposit by a condo? What recourse do I have if I don’t receive the deposit by the end of this month?

    Thanks in advance.

    • Rachelle

      It’s not unusual for condos or other companies to require two people to sign all checks. In those cases they will meet up once a month to look over and sign all checks.I’m not sure where you would go for “recourse” It’s $50.

  • Mo

    Thanks for your reply. I figured there would be no “recourse” and would probably have to cut my losses. I’ve heard of others who’ve had to do the same, so ultimately the condo pockets the money. $50 may not seem like a lot of money to some, but for the working poor trying to make ends meet, $50 can go a long way. I guess I just wanted to know from someone within the industry how common this situation is and what protocol could be followed.

  • Chris

    Hi

    What if the terms of your agreement is to pay rent on the first of the month and your landlord was able to get the place rerented on 15th of the month. I am still in titled to a portion of rent back for that month?

    Thank you