Summary:
- How is interest on Last Month's Rent (LMR) deposit calculated? (examples)
- Offsetting interest against the 'top-up' of LMR deposit
- Is interest due on any other deposits or funds?
- Can the landlord owe interest before the lease anniversary?
- What is the tenant's recourse?
- What is the limitation period for claiming interest on LMR deposit?
- Can the principle of de minimis apply?
- Etc
RTA subsection 106(6) states:
"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. 2006, c. 17, s. 106 (6)."
- This means that interest due on the anniversary in 2021 would be equal to zero (see RTA subsection 120(3.1)), and interest due on the anniversary in 2022 would be equal to 1.2%.
(To find full list of past Guidelines (and, by extension, interest rates for calculating interest on LMR deposit) from 1991 till 2022, see https://www.ontario.ca/page/residential-rent-increases. To find out more about rent increases, see https://residential-tenancies-ontario.blogspot.com/2021/09/notice-of-rent-increase-reminders-and.html. To find out more about the guideline and how it is calculated, see https://residential-tenancies-ontario.blogspot.com/2021/09/is-there-way-to-verify-or-predict.html.)
It is also an offence to fail to pay interest annually when it is due, see RTA subsection 234(e):
"Other offences234 A person is guilty of an offence if the person,[...](e) fails to pay to the tenant annually interest on the rent deposit held in respect of their tenancy in accordance with section 106;"
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Some interesting points:
1. Simple interest
Even though the landlord must pay interest annually, if he doesn't, the calculation over the years will be based on simple interest, not compound interest. Since the RTA does not mention compounding, adjudicators don't have the jurisdiction to use compound which would result in greater amounts (though one might argue that compounding would be more in line with how interest on deposits is calculated in finance in general).
See, for example, 1) TSL-78484-16-RV (Re), 2017 CanLII 60103 (ON LTB), <https://canlii.ca/t/h5zdz> (where additional interesting issues were also covered, such as interest owing from previous landlord (RTA section 18 - "covenants running with the land"), as well as requirement to provide landlord's legal name and address (under RTA section 12) being applicable only to tenancies that started on or after June 17, 1998).
"1. The request for review was sent to a hearing on a single question: whether the Tenant had paid the predecessor landlord a last month rent deposit (LMR) and, consequently, whether interest on the LMR should be set off against the balance owing.
2. The Landlord had no information, therefore the Tenant’s evidence that an LMR paid to the previous landlord of $2,200.00 on October 14, 1992 was uncontested. The order therefore contains a serious error where it does not acknowledge the LMR.
3. I did not agree with the Tenant’s submission that the LMR should have been accumulating compound interest rather than simple, annual interest. The operative legislation at the time the LMR was paid was the Landlord and Tenant Act, RSO 1990, c. L.7 which provided in subsection 83(2) that “the landlord should pay interest annually on any money held by the landlord as a security deposit…” The fact it was not paid does not alter the point that interest was payable on an annual and not a compounded basis.
4. Even on an annual basis, the interest owing to the Tenant on the LMR was higher than either party at the review hearing expected because the interest rate was 6% per year up until January 31, 2007 when the Act came in force. To the termination date in the N4 notice of termination preceding the application, the total interest on the LMR owing is $2,280.52.
5. The only relevant remedy requested in the Tenant`s application no when the tenancy ended November 24, 2016, was an abatement of rent of $1,200.00 which the Landlord did not oppose. That amount should also therefore be set off against the amount owing."
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2. Last month of the tenancy - exception
It is worth noting that the last month of the tenancy would be excluded from the calculation of interest due because the last month’s rent deposit is to be applied to the last month of the tenancy (as per RTA subsection 106(10), which means that the landlord becomes entitled to the money on the first day of the last month of the tenancy, and, therefore, it is no longer "held" as a deposit as of that date, but is already applied and used as an actual rent payment.
Example:
"20. There is also no dispute that the tenancy terminated on January 31, 2014 and the deposit was applied to the rent due for the month of January, 2014. The Landlord credited interest to the Tenant’s account but made no payment to the Tenant of interest.
[...]
22. When a tenancy ends the deposit is mandatorily applied to the rent due for the last month of the tenancy pursuant to s. 106(1). At that point in time the deposit ceases to exist and becomes rent. Here, the deposit ceased to exist as a deposit and became rent on January 1, 2014."
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3. The 2007 exception
Please note that if last month's rent deposit was held at any time before January 31, 2007 (i.e. before the RTA came into force), interest was a flat 6% back then. Also, if last month's rent was held during 2007, you will have to calculate interest due for 2007 more carefully, because up until (and including) January 30, 2007, interest on LMR deposit was a flat 6% (as per the Tenant Protection Act, subsection 118(6)), but from January 31, 2007 until December 31, 2007, interest was equal to the Guideline for 2007, i.e. 2.6% (as per the Residential Tenancies Act, subsection 106(6)). This transition is covered under RTA subsection 106(8):
"Transition(8) Despite subsection (6), the first interest payment that becomes due under subsection (6) after the day this subsection comes into force shall be adjusted so that,(a) the interest payable in respect of the period ending before the day this subsection comes into force is based on the annual rate of 6 per cent; and(b) the interest payable in respect of the period commencing on or after the day this subsection comes into force shall be based on the rate determined under subsection (6). 2006, c. 17, s. 106 (8)."
Examples:
"9. As I stated at the hearing, subsection 106(8) of the Act covers the situation where interest is owed for a period which spans both the previous legislation and the current Act. This is because interest is calculated under the new Act in a manner which is different than under the previous Tenant Protection Act. Essentially, the Act came into effect on January 30, 2007. Pursuant to subsection 106(8) of the Act, this means that up until January 30, 2007 interest is to be calculated at 6% as it was under the Tenant Protection Act. From January 31, 2007 forwards, interest is calculated pursuant to section 120 of the new Act. Section 120 is the section which states how the guideline amount for rent increases is to be determined. What this means is that effective January 31, 2007 the interest rate owing on deposits to tenants is the same rate as the guideline amount for rent increases that is in effect for that year. In 2007 the guideline amount was 2.6% as stated above. As a result, the interest owing on the Tenant’s deposit of $1,331.26 for the period May 1, 2006 to April 30, 2007 should be calculated as follows:
$1,331.26 x 6% x (275 days/365 days per year) +
$1,331.26 x 2.6% x (90 days/365 days per year) = $68.71"
"2. However, neither calculation was done in accordance with subsection 106(6) or 106(8) of the Residential Tenancies Act, 2006 (the ‘Act’) since the percentage of interest each used was not correct for each year.
3. In accordance with subsection 106(6) and 106(8) of the Act, the amount of interest was calculated at the rate of 6% for the period September 1, 1992 to January 30, 2007. This amounted to $865.48 interest owing on the deposit of $1,000.00."
5) TET-72997-16 (Re), 2016 CanLII 88867 (ON LTB), <https://canlii.ca/t/gw4vf> at para. 8 - 9 oddly included January 31, 2007 under 6% (the old TPA), even though the RTA was already in force starting January 31, 2007, so, presumably, 2.6% should have applied from January 31, 2007 (as, for example, in the 2 rulings presented above) and not from February 1, 2007.
"8. The Act came into effect on January 31, 2007 so the Tenants are only entitled to interest at the rate of 6% for the period July 1, 2006 to January 31, 2007. This amount is calculated as follows:
• $800.00 x 6% ÷ 365 days/year x 215 days = $28.27.
9. Pursuant to s. 106(6) interest after January 31, 2007 is calculated as follows:
• For the period February 1, 2007 to June 30, 2007: $800.00 x 2.6% ÷ 365 days/year x 150 days = $8.55; [...]"
However, 6) TST-89095-17 (Re), 2017 CanLII 142764 (ON LTB), <http://canlii.ca/t/hrxbd> used 6% for the whole year of 2007, possibly incorrectly, since it doesn't seem to match the wording in the statutory provision under RTA subsection 106(8) and other rulings that rely on that section.
"
Date interest started to accrue | Date interest was due | Interest rate in effect | Amount of interest due |
[...]
September 30, 2006 | September 29, 2007 | 6% | $57.60 |
"
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4. Calculation tips and examples
For a quick way to calculate interest due, especially in situations when the tenant has not been demanding interest every year, but wants to keep track of interest owing for the future, I would use an Excel spreadsheet.
One of the helpful formulas in Excel is EDATE (start_date, number_of_months (12)), which will bring the anniversary date for the next year. So if, for example, the tenancy started on December 1, 2011, the anniversary of December 1, 2012 would be calculated as EDATE ("December 1, 2011", "12"). Interest due would be $ deposit amount multiplied by the % Guideline for the year when interest is due.
Example:
Interest on Last Month's Rent Deposit: sample calculation in Excel spreadsheet (can be downloaded and edited)
Let's look at a more detailed example:
Let's say, a tenancy agreement was entered into mid-month on September 15, 2000, and that is when the tenant paid his Last Month's Rent deposit of $1,000. Interest was never paid, and rent was never increased.The tenant provided his N9 notice of termination with the termination date of September 14, 2021 (so LMR deposit is applied to the last month of the tenancy, i.e. from August 15, 2021 till September 14, 2021), and the tenant now wants to get his interest on LMR deposit.Let's calculate interest due (and overdue):September 15, 2000 till September 14, 2001 = $1,000 x 6% = $60September 15, 2001 till September 14, 2002 = $1,000 x 6% = $60September 15, 2002 till September 14, 2003 = $1,000 x 6% = $60September 15, 2003 till September 14, 2004 = $1,000 x 6% = $60September 15, 2004 till September 14, 2005 = $1,000 x 6% = $60September 15, 2005 till September 14, 2006 = $1,000 x 6% = $60September 15, 2006 till January 30, 2007 = $1,000 x 6% x (16 days in September + 31 days in October + 30 days in November + 31 days in December + 30 days in January) / 365 days = $1,000 x 6% x 138 days / 365 days = $22.68January 31, 2007 till September 14, 2007 = $1,000 x 2.6% x (1 day in January + 28 days in February + 31 days in March + 30 days in April + 31 days in May + 30 days in June + 31 days in July + 31 days in August + 14 days in September) / 365 days = $1,000 x 2.6% x 227 days / 365 days = $16.17September 15, 2007 till September 14, 2008 = $1,000 x 1.4% = $14September 15, 2008 till September 14, 2009 = $1,000 x 1.8% = $18September 15, 2009 till September 14, 2010 = $1,000 x 2.1% = $21September 15, 2010 till September 14, 2011 = $1,000 x 0.7% = $7September 15, 2011 till September 14, 2012 = $1,000 x 3.1% = $31September 15, 2012 till September 14, 2013 = $1,000 x 2.5% = $25September 15, 2013 till September 14, 2014 = $1,000 x 0.8% = $8September 15, 2014 till September 14, 2015 = $1,000 x 1.6% = $16September 15, 2015 till September 14, 2016 = $1,000 x 2% = $20September 15, 2016 till September 14, 2017 = $1,000 x 1.5% = $15September 15, 2017 till September 14, 2018 = $1,000 x 1.8% = $18September 15, 2018 till September 14, 2019 = $1,000 x 1.8% = $18September 15, 2019 till September 14, 2020 = $1,000 x 2.2% = $22September 15, 2020 till September 14, 2021 = $1,000 x 0% x 11 months / 12 months = $0Total (for a tenancy from September 15, 2000 till September 14, 2021) = $631.85Notice that interest would not be calculated for the last month (August 15, 2021 till September 14, 2021) (not that it matters specifically for the year 2021 when the Guideline is zero, see RTA subsection 120(3.1)), because this is when LMR deposit is being applied to pay for rent and no longer held as a deposit.
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5. What do you do when the tenancy ends in the middle of the annual period and not on the last day of the rental period right before the anniversary?
We see 2 approaches:
1) The first one is to add those extra days under the current year's Guideline:
E.g.
By Laura Hartslief:
"[...] • For the period July 1, 2014 to June 30, 2015: $800 x 1.6% = $12.80; and
• For the period July 1, 2015 to August 2, 2016: $800 x 2.0% ÷ 365 days/year x 398 days = $17.45."
By Ruth Carey:
"[...]
• For the period May 1, 2014 to April 30, 2015: $1,150.00 x 1.6% = $18.40;
• For the period May 1, 2015 to June 30, 2016: ($1,150.00 x 2.0%) ÷ 365 days/year x 426 days= $26.84.
8. With respect to the last period set out above the reason the end date is June 30, 2016 is because subsection 106(10) of the Act says that a landlord must mandatorily apply a rent deposit to the rent due for the last month of the tenancy. The Tenant moved out in mid-July, 2016, having paid no rent for that month. As the deposit must be applied to the rent due for July, 2016, interest is payable up to June 30, 2016 as the deposit ceased to be a deposit and became rent on July 1,2016."
2) The second approach is to calculate the "overflowing" days under the Guideline for the next year, i.e. when the anniversary would be due next year.
E.g.: also by Ruth Carey (but an older ruling):
"19. There is no dispute that on August 26, 2013 the Tenant paid to the Landlord a last month’s rent deposit as well as rent for the first month of the tenancy which began September 1, 2013. The amount of the deposit was $949.00.
20. There is also no dispute that the tenancy terminated on January 31, 2014 and the deposit was applied to the rent due for the month of January, 2014. The Landlord credited interest to the Tenant’s account but made no payment to the Tenant of interest.
21. Pursuant to s. 106(6) of the Act 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 in effect at the time payment becomes due. Here it was less than a year since the deposit was collected. In such circumstances interest should be paid to a tenant only for the period during which the landlord was holding the deposit.
22. When a tenancy ends the deposit is mandatorily applied to the rent due for the last month of the tenancy pursuant to s. 106(1). At that point in time the deposit ceases to exist and becomes rent. Here, the deposit ceased to exist as a deposit and became rent on January 1, 2014. Interest was not payable and had not finished accruing until 2013 was over. Therefore, the applicable guideline interest rate to use is that of 2014 and not 2013. The guideline amount for 2014 is 0.8%. Therefore, the Tenant is entitled to interest calculated at 0.8% for the period August 26, 2013 to December 31, 2013 inclusive. I calculate the interest as follows: $949.00 x 0.8% ÷ 365 days/year x 127 days = $2.64."
What do you think is the correct approach?
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6. Offsetting interest due against a "top-up" of LMR deposit
RTA subsection 106(3) states:
"Same(3) If the lawful rent increases after a tenant has paid a rent deposit, the landlord may require the tenant to pay an additional amount to increase the rent deposit up to the amount permitted by subsection (2). 2006, c. 17, s. 106 (3); 2013, c. 3, s. 32 (1)."
While RTA subsection 106(7) states:
"Deduction applied to rent deposit(7) The landlord may deduct from the amount payable under subsection (6) the amount, if any, by which the maximum amount of the rent deposit permitted under subsection (2) exceeds the amount of the rent deposit paid by the tenant and the deducted amount shall be deemed to form part of the rent deposit paid by the tenant. 2006, c. 17, s. 106 (7)."
This allows for offsetting of interest due against the top-up of LMR deposit if rent is increased, which means that landlords should increase rent as soon as legally permissible (i.e. every 12 months (as per RTA section 119), outside of the "rent freeze of 2021" time (RTA subsection 120(3.1)).
This also means that if the unit is exempt from the Guideline under RTA section 6.1 and the landlord increases rent above the Guideline OR if landlord wins an AGI (L5 application at the LTB) under RTA section 126, the tenant would need to top up LMR deposit above and beyond the interest that the landlord owes, but the top-up portion for the "above the guideline" part of the rent increase would be due only once the LTB approves the AGI (see, for example, 10) SWL-87167-16 (Re), 2016 CanLII 44324 (ON LTB), <https://canlii.ca/t/gsk3z>).
"When can I request a top up of the last month’s rent deposit to the current rate?- A landlord can request a top-up of the last month’s rent deposit when a notice of rent increase has been given. Since the landlord is required to pay interest on the last month’s rent deposit annually, instead of paying this interest to the tenant, the landlord can use it to top-up the last month’s rent deposit. Let your tenant know that this is what you will be doing or they may decide to deduct the amount of interest they are owed from their next rent deposit."
What is an easy approach for offsetting?
First calculating all the interest due, then seeing if the current lawful rent amount is greater than the currently held LMR deposit (calculating the difference), and then using interest due to cover the difference. See example below.
2. The Tenants paid the Landlord a deposit of $840.00 on October 1, 2008. No interest has been paid on the deposit.
3. The interest owing for the period from October 1, 2008 to September 30, 2009 at the applicable rate of 1.8% is $15.12.
4. The interest owing for the period from October 1, 2009 to September 30, 2010 at the applicable rate of 2.1% is $17.64.
5. The interest owing for the period from October 1, 2010 to September 30, 2011 at the applicable rate of 0.7% is $5.88.
6. The total interest owing for the period from October 1, 2008 to September 30, 2011 is $38.64.
7. Interest owing on the deposit from October 1, 2011 to September 30, 2012 is not yet due and will not be due until October 1, 2012.
8. The current monthly rent amount is $950.00. Therefore, there is a difference/shortfall of $110.00 between the deposit amount and the monthly rent amount.
9. In accordance with subsection 106(7) of the Residential Tenancies Act, 2006 (the 'Act'), the Landlord is entitled to credit the interest owing on the last month's rent deposit to increase the deposit.
10. The current last month's rent deposit is $840.00. The total interest owing ($38.64) is credited to the deposit resulting in the new deposit amount of $878.64."
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7. Can obligation to pay interest on LMR deposit be waived in exchange for not raising rent?
Examples:
"11. It seems to me fairly obvious that the plain meaning of the phrase “shall pay interest to the tenant annually on the amount of the rent deposit” means something other than vague tit for tat promises about foregoing rent increases. I say this for two primary reasons.
12. First of all, if the legislature had wanted to permit a landlord to pay interest by way of an exchange of another type of good consideration, it could have done so just like it did in subsection 2(1) for the definition of rent. That section defines rent in part as follows:
‘“rent” includes the amount of any consideration paid or given or required to be paid or given by or on behalf of a tenant to a landlord or the landlord’s agent for the right to occupy a rental unit …’[emphasis added]. Clearly if the legislature wanted landlords to have the ability to pay the interest through some mechanism other than by way of cash, cheque or money order, it could have imported similar language into subsection 106(6) as appears in the definition of rent.
13. Secondly, I am of the view that the use of the word “pay” in other provisions of the Act would also support the idea that the legislature did not intend for landlords to pay the interest owing by means of some sort of exchange of non-monetary consideration. For example, under subsection 106(3) when the rent increases, a landlord is entitled to require a tenant to pay an additional amount to top up the deposit to match the new rental amount. Subsection 106(1) says a landlord may require a new tenant to pay a rent deposit prior to entering into the tenancy. Clearly, if tenants were entitled to argue that they “paid” deposits or top ups to their deposits through providing some other form of good consideration endless disputes would arise as to whether or not the consideration had been given and what the value of the consideration should be. The purposes of the Act are set out in section 1 and include “to balance the rights and responsibilities of residential landlords and tenants and to provide for the adjudication of disputes and for other processes to informally resolve disputes.” Section 183 says the Board’s proceedings are intended to be expeditious. It seems to me that interpreting “pay” to include vague exchanges of non-monetary consideration would not provide for expeditious or informal resolution of disputes but instead would require the Board to hold extensive and rigorous evidentiary hearings that the legislature clearly did not intend it to do for something as simple as keeping track of deposits and interest paid."
As stated by Ruth Carey in 14) TST-01025 (Re), 2008 CanLII 82434 (ON LTB), <https://canlii.ca/t/25tr1> at para. 8:
"8. What these provisions mean is that a landlord is entitled to allocate a portion of the interest due to the tenant to the deposit to top it up so that the deposit continues to equal the monthly rent. Subsection 106(9) states that where a landlord fails to pay to a tenant the interest that is remaining, the tenant may deduct it from his or her rent. In addition, the Act permits a tenant or former tenant to bring an application such as this one to recover the interest where the tenant has not deducted it from his or her rent. The Act also makes it an offence for a landlord to fail to pay interest on the deposit to a tenant. As a result, the obligation to pay interest to the Tenants is not one the Landlord should take lightly."
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8. Does this apply to prospective tenants who paid LMR deposit, but never turned into tenants?
I have only seen one ruling addressing this question, so I am not sure, but this ruling says that RTA subsection 106(6) is applicable specifically to TENANTS. Since the prospective tenant does not qualify, the adjudicator ruled that the Board does not have jurisdiction to order interest on LMR deposit to be paid:
"Interest on rent deposit
20. Subsection 106(6) of the Act provides that 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.
21. It is undisputed that vacant possession of the rental unit was not given to the Tenant. Therefore the Tenant remained a prospective tenant and subsection 106(6) entitles a tenant, not a prospective tenant, to the payment of interest on the rent deposit.
22. This claim is dismissed."
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9. Is interest calculated on anything other than LMR deposit (e.g. on key deposit, prepaid rent, illegal damage or pet deposits)?
Some LTB rulings state that the LTB does not have jurisdiction to order interest on anything other than LMR deposit, since RTA subsection 106(6) covers specifically last month's rent deposit and no other funds.
"16. I have calculated the interest owed to the Tenants to be $140.00. This amount is slightly lower than the amount claimed by the Tenants in their application. The Tenants claim interest on the damage deposit as well as on the rent deposit. There is no provision in the Act requiring a landlord to pay interest on any deposit other than a rent deposit, so the amount awarded is just the interest on the rent deposit."
"26. I find that the Landlords failed to pay the Tenants interest on the last month’s rent deposit, as required by the Act. An order will issue that the Landlords pay interest to the Tenants for the last month’s rent deposit.
27. The Board does not have jurisdiction to award interest on the funds that the Landlords collected, namely on the damage and key deposit and the excess last month’s rent deposit."
Other examples:
However, other rulings state differently, including the Divisional Court ruling in 22) Corvers v. Bumbia, 2014 ONSC 985 (CanLII), <https://canlii.ca/t/g3gpm>, which applied interest to prepaid rent (though it didn't go into any detailed analysis of the issue).
Examples:
"[1] There was finding of fact that the rent deposit of $90,000 was voluntary. That finding of fact was based on the evidence before the application judge. There is no palpable or overriding error in that finding.
[2] It is our view that this case is consistent with Royal Bank v. MacPherson (2009), 311 D.L.R. (4th) 361 and that therefore the rent deposit was not “required” for the purposes of s. 106 of the Residential Tenancies Act. Therefore, there was no contravention under s. 135 of the Residential Tenancies Act. Therefore, there is no basis upon which we can interfere with the decision of the application judge.
[3] We agree that s. 106(6) of the Residential Tenancies Act required that interest be paid on this deposit and therefore we agree that the application judge made an error in law in refusing interest on the full amount of the deposit. Interest is to be calculated on the monthly declining balance at the rate of 2.5% in 2013 and 0.8% in 2014 and paid on April 17, the anniversary date of the lease.
COSTS
[4] I have endorsed the back of the Appeal Book and Compendium, “This appeal is dismissed in part and allowed in part. For oral reasons, the appeal is dismissed with the exception of the appellant’s entitlement to interest on the full amount of the deposit on a declining balance. The appellant shall pay costs to the respondent in the amount of $6,000 with respect to the application and the appeal.”"
"2. There is also no dispute that on April 6, 2016 the Tenants paid the Landlord $2,100.00 for first and last month’s rent and an additional $500.00 as a “deposit for cable receiver, keys, damage if any and refundable at lease end (within 30 days)”."
$2,100 / 2 = $1,050 last month's rent deposit
+ $500 damage deposit
Total: $1,550
"8. With respect to the interest due on the deposits, interest is calculated up to the date the last month’s rent deposit ceased to be a deposit and became rent. As the last month’s rent deposit was used for the rent due on December 15, 2017, the Tenants are entitled to interest up to December 14, 2017. Interest is calculated as follows:
For the period April 6, 2016 to April 5, 2017: $1,550.00 x 1.5% = $23.25; and
For the period April 6, 2017 to December 14, 2017: [$1,550.00 x 1.5%] ÷ 365 days/year x 253 days = $16.12;
For a total of $39.37."
"3. On June 29, 2015, the Tenants paid the Landlords $2,475.00. This amount represents a last month’s rent deposit of $1,975.00 and an additional amount of $500.00 for a “security deposit”.
4. The Tenants and the Landlords subsequently agreed to terminate the tenancy prior to the lease end and the tenancy was terminated on consent effective April 30, 2016. The last month’s rent deposit was applied to the rent due for the month of April, 2016.
5. The Landlords are refusing to refund to the Tenants the amount collected as a “security deposit”. So the Tenants filed this application.
[...]
12. Pursuant to s. 106(10) of the Act a deposit must be applied to the rent due for the last month of the tenancy. Here, that was April, 2016; so interest is payable to the Tenants on their deposit for the period June 29, 2015 to March 31, 2016. Interest is calculated as follows:
[($2,475.00 x 2.0%) ÷ 365 days/year] x 276 days = $37.43.
13. An order will issue requiring the Landlords to pay to the Tenants $37.43 for interest on their deposit."
"7. Subsection 106(12) of the Act states that “The amount of a rent deposit shall not be more than the lesser of the amount of rent for one rent period and the amount of rent for one month.”
In this case, the Landlord collected the last month deposit and a “pet deposit” in the amount of $800.00 at the start of the tenancy. The idea of having a “pet deposit” was raised by the Landlord during the negotiation of the tenancy agreement and the Tenants consented to it. However, it is illegal under subsection 106(12) of the Act for the Landlord to collect more than one month as rent deposit.
8. Subsection 106(6) of the Act states that “A landlord of a rental unit shall pay interest to the tenancy 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.”
In this case, the Landlord kept a last month deposit of $1,195.00 and a “pet deposit” of $800.00 from June 1, 2013. Based on the Ministry guideline, the interest accrued on the deposits amounts to $41.06 up to the termination date of the tenancy."
($1,195 + $800) * 2.5% * 7 months / 12 = $29.09375 (for June - Dec 2013)
($1,195 + $800) * 0.8% * 9 months / 12 = $11.97 (for Jan - Sept 2014)
Total = $41.06375 (Oddly, calculating based not on the Guideline in effect on the lease anniversary date, but using December 31, 2013 as the cut-off date for "splitting" when the 2013 Guideline vs. 2014 Guideline would be used for calculating interest.)
"3. The last month rent deposit held by the Landlord was applied towards June 2010 rent. The Landlord failed to pay interest on last month's deposit as required by the Act. The Landlord owes $16.17 to the Tenant for the period from September 1, 2009 to May 31, 2010.
4. Sub-section 204(1) of The Residential Tenancies Act 2006 states: ”The Board may include in an order whatever conditions it considers fair in the circumstances”. I find that the Landlord also owes interest on the $2,000.00 illegal charge for the period from September 1, 2009 to August 5, 2010 in the amount of $37.01.
It is ordered that:
1. The Landlord owes and shall pay to the Tenant the sum of $2,000.00 which was illegally collected for a damage deposit.
2. The Landlord owes and shall pay to the Tenant the sum of $16.17 for interest on the last month rent deposit up to May 31, 2010.
3. The Landlord owes and shall pay to the Tenant the sum of $37.01 for interest on the damage deposit up to August 5, 2010."
"17. Pursuant to subsection 106(6) of the Act, a landlord is obliged to pay interest to the tenant annually on the last month’s rent deposit. Therefore, MH is entitled to an amount for the period February 8, 2018, to February 7, 2019.
18. It was MH’s own evidence that IR moved into the rental unit at the end of May, 2018, and was added to the lease at the end of July, 2018. I find, on a balance of probabilities, that MH is entitled to the full amount of interest for the period of four months, until June 7, 2018, and that she is entitled to half the amount of interest for eight months (June 8, 2018, up to and including February 7, 2019).
19. The last month’s rent deposit is $2,800.00. MH is entitled to $33.60:
a) 1.8% X $2,800.00 = $50.40/12 = $4.20 per month for 4 months or $16.80,
b) $4.20/2 per month for 8 months = $16.80.
20. MH also claimed interest on an extra last month’s rent deposit of $2,800.00, that was collected illegally when MH and CA first moved in. The Landlord returned the amount of $2,800.00 to MH when she moved out.
21. The Landlords also owe interest to MH on this extra rent deposit for a period of 13 months, or $4.20 X 13 = $54.60.
22. The Landlords owe MH an amount of $88.20 of unpaid interest."
Steps to Justice talks about interest on "deposits" in the plural form:
"Interest on depositsEach year, the landlord must pay you interest on your deposits. Interest is extra money to make up for the fact that you can't use your money because the landlord is holding it as a deposit."
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10. Interest is due annually, but what happens if a tenancy is terminated by an LTB order before the first anniversary of the lease?
Calculation of interest due would include mid-year terminations then, despite the wording in RTA subsection 106(6) talking about interest due annually.
There are lots of LTB rulings demonstrating this, and they are very consistent with this approach, so I will provide just an example of a "short tenancy" (as the adjudicator put it), but feel free to search CanLII under ON LTB, for example, by searching using key words such as: "L1" and "interest on last month's rent deposit", etc.
Also, interest is due for the period of time when the deposit is actually held.
"3. The Landlord is holding a last month’s rent deposit in the amount of $1,275.00 collected on April 6, 2014.
4. The total amount of interest on the last month’s rent deposit to June 27, 2014 is $2.32.
5. The Tenants moved into the unit on April 9, 2014. The lawful monthly rent is $1,275.00."
In the case below, the tenancy was terminated on January 31, 2014, the LMR deposit turned into rent (and ceased to exist as a deposit on January 1, 2014), so interest rate applied was "the guideline in effect at the time payment becomes due", i.e. the one for 2014 and not the one for 2013.
"19. There is no dispute that on August 26, 2013 the Tenant paid to the Landlord a last month’s rent deposit as well as rent for the first month of the tenancy which began September 1, 2013. The amount of the deposit was $949.00.
20. There is also no dispute that the tenancy terminated on January 31, 2014 and the deposit was applied to the rent due for the month of January, 2014. The Landlord credited interest to the Tenant’s account but made no payment to the Tenant of interest.
21. Pursuant to s. 106(6) of the Act 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 in effect at the time payment becomes due. Here it was less than a year since the deposit was collected. In such circumstances interest should be paid to a tenant only for the period during which the landlord was holding the deposit.
22. When a tenancy ends the deposit is mandatorily applied to the rent due for the last month of the tenancy pursuant to s. 106(1). At that point in time the deposit ceases to exist and becomes rent. Here, the deposit ceased to exist as a deposit and became rent on January 1, 2014. Interest was not payable and had not finished accruing until 2013 was over. Therefore, the applicable guideline interest rate to use is that of 2014 and not 2013. The guideline amount for 2014 is 0.8%. Therefore, the Tenant is entitled to interest calculated at 0.8% for the period August 26, 2013 to December 31, 2013 inclusive. I calculate the interest as follows: $949.00 x 0.8% ÷ 365 days/year x 127 days = $2.64."
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11. If the landlord refuses to pay interest on LMR deposit, what is the tenant's recourse?
Tenants can request interest LMR deposit and can file a T1 application at the LTB (citing Reason 5) under RTA section 135 and/or involve the Rental Housing Enforcement Unit, since it is an offence under RTA subsection 234(e) to fail to pay interest on LMR deposit in violation of RTA subsection 106(6).
From T1 Instructions by the LTB (under Reason 5):
Guided Pathways for a T1 Application (by Steps to Justice): https://stepstojustice.ca/guided-pathways/for-tenants-who-want-a-return-of-money-the-landlord-owes-t1/
Rental Housing Enforcement Unit: https://www.ontario.ca/page/solve-disagreement-your-landlord-or-tenant
Tenants can also deduct interest from the next rent payment with an accompanying letter, but I would not recommend doing this without getting legal advice first, since it's easy to miscalculate the amounts or miss something important and then end up fighting an N4 / L1 for non-payment of rent due to a small error. Please contact a legal professional for legal advice on your specific case (for example, local community legal clinic can provide free summary legal advice to tenants in many cases).
"Deduction of interest from rent(9) Where the landlord has failed to make the payment required by subsection (6) when it comes due, the tenant may deduct the amount of the payment from a subsequent rent payment. 2006, c. 17, s. 106 (9)."
Sample letter about interest by Federation of Metro Tenants Associations (FMTA):
From page 50 of the Tenant Survival Manual: https://d3n8a8pro7vhmx.cloudfront.net/fmta/pages/48/attachments/original/1563939541/Tenant_Survival_Manual_-_English_2008.pdf
Sample letter about interest by Advocacy Centre for Tenants Ontario (ACTO):
From page 3 of Tip Sheet for Tenants: Rent Deposits: http://www.acto.ca/~actoca/assets/files/docs/TipSheet_RentDeposits_0107.pdf
A concern is that if the tenant demands interest on LMR deposit, the landlord will, in the future, always increase rent as soon as it is legally allowed in order to avoid owing any interest. So one of the options tenants might want to consider is demanding LMR deposit only at the very end of the tenancy (e.g. for multiple years in one shot).
But in that case, would the 1 year limitation period apply and preclude the tenant from being able to get the interest for multiple years prior? See below.
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12. Limitation period
These rulings are saying that the tenant would be entitled to more than just 1 year of unpaid interest, despite the general statutory 1-year limitation period for T1 applications under RTA subsection 135(4):
30) 626114 & 626115 Ontario Ltd. v. Tirado, 2005 CanLII 36461 (ON SCDC), <https://canlii.ca/t/1lrk9>
[8] In addressing the issue of interest on the rental deposit, the Tribunal Member stated:
The tenant has not received interest on her last month since she moved into the building. The landlord attempted to argue that although he did not pay interest, he credited the tenant with the interest by topping up her last month rent deposit. This is not credible as the last month rent deposit claimed in the application is $700.00, which is the amount collected by the landlord in 1998. The tenant may only claim one year interest. I have credited the tenant with $42.00 interest; this is for previous interest and not the interest owed for this calendar year.
[9] The Tribunal Member provided no reasons for imposing the one year limitation, but she may have relied on section 144(4) of the TPA. In our view, this was an error. The tenant was not bringing a claim under s.144, but was asserting her rights under s.118 with respect to interest owed on an annual basis.
[10] Regardless, even where an Application has been brought under s. 144, we agree with the reasoning of Tribunal Member, D. R. Wright, in Hash v. Retirement Life Communities, [2000], O.R.H.T.D. No. 12, that the one year limitation in s.144(4) should not apply to interest payments under s.118. Indeed, s.118(7) authorizes the tenant to deduct interest owed from a rental payment where the landlord has failed to make the required payment when it becomes due. That section appears to authorize a deduction of all interest owed. In this case the landlord has had the use of the tenant’s $700.00 rental deposit since 1998. The legislature, in its wisdom, has determined in s.118(6) that a tenant should have interest on those funds annually at a rate of 6% per annum.
[11] The landlord advanced the same argument before us as he had before the Tribunal Member, in that he had credited the tenant with interest by topping up her last month’s rent deposit. The Tribunal Member found that explanation not to be credible. Moreover, the landlord never gave the tenant notice or “required” her to increase the amount of the rent deposit. He, therefore, cannot rely on s. 118(3) of the TPA.
[12] Accordingly, we would vary the Tribunal’s Order in respect of the interest on the rental deposit and credit the tenant with interest at the rate of 6% per annum on the sum of $700.00 commencing April, 1998, until the landlord receives vacant possession of the rental unit."
"10. The Landlord did not argue in this instance that the Tenant should only be entitled to interest payable during the one year limitation period set out in s. 135(4). Given the Divisional Court’s reasoning in 626114 & 626115 Ontario Ltd. v. Tirado, 2005 CanLII 36461 (ON SCDC), I believe the Tenant is entitled to the entirety of the interest retained by the Landlord."
"10. So over the course of the tenancy the Landlord should have paid interest totalling $166.27.
11. Section 135(4) seems to imply that there is a one year limitation period with respect to applications for money unlawfully retained by a landlord. However, given the Divisional Court’s reasoning in 626114 & 626115 Ontario Ltd. v. Tirado, 2005 CanLII 36461 (ON SCDC), I believe the Tenants are entitled to the entirety of the interest retained by the Landlord."
"10. The Landlord did not argue in this instance that the Tenant should only be entitled to interest payable during the one year limitation period set out in s. 135(4). The Landlord’s submissions regarding the one year limitation period were confined to the illegal rent increase which will be discussed below.
11. Regarding the interest owing on the deposit, I am bound by the Divisional Court’s findings in 626114 Ontario Ltd.v. Tirado, [2005] O.J. No. 4350 (Ont.Div.Ct.) which confirms that the Tenant is entitled to the entirety of the interest retained by the Landlord."
"9. A lot of the interest due to the Tenant accumulated more than a year before the application was filed. However, the interest due to the Tenant was an amount that was retained by the Landlord up to the end of the tenancy. The tenancy ended within a year before the application was filed and so there is no issue as to the Tenant’s claim for this interest being barred by the one year limitation period; the interest was retained at a time that was less than a year prior to the date the application was filed."
"14. I calculate the total amount of interest on the last month’s rent deposit, owing to the Tenant, from September 3, 2009 to March 31, 2014 inclusive, to be $50.63 and an Order will issue accordingly.
15. While the Landlord did not argue the applicability of subsection 135(4) of the Act, which states:“no order shall be made under this section with respect to an application filed more than one year after the person collected or retained money in contravention of this Act”, I am, nonetheless, guided in this regard by the Divisional Court’s decision in Dollimore v. Azuria Group Inc., [2001]O.J. No. 4408. That decision states, in essence, that the one-year limitation does not commence until the act of retention of the funds at issue ceases. Here, the Landlord continued to retain the money to the date of the hearing and, as such, I find the limitation not to apply and that the Landlord owes the Tenant the said amount."
"20. Section 135(4) sets a one-year limitation period for recovery of money collected or retained contrary to the Act.
21. In OL V. T 2005 O.J. No. 4350 the Court determined the limitation period does not apply to interest payments under Section 106 of the Act.
22. The Landlord failed to pay the Tenants interest on last month's deposit as required by the Act.
23. The Tenants claimed $1,900.00 for interest on the rent deposit. The Tenants are entitled to interest on the rent deposit paid on July 1, 2013 to June 30, 2016 in the amount of $105.60."
Though this ruling seems to take a different position, but only in passing:
"13. Dollimore also applies in the context of interest. Landlords are required to pay interest on a last month’s rent deposit to a tenant annually pursuant to s. 106(6) so if the deadline for payment arrives and the landlord does not pay the interest or use it to top up the deposit then at that point in time the landlord starts to illegally retain the interest and the tenant has a year to file an application from the date the illegal retention starts."
38) Dollimore v. Azuria Group Inc., 2001 CarswellOnt 4042, [2001] O.J. No. 4408, [2002] C.C.S. No. 1021, 109 A.C.W.S. (3d) 501, 152 O.A.C. 57
"Subsection 4 provides:
No order shall be made under this section with respect to an application filed more than one year after the person collected or retained money in contravention of this Act.
7 The appellant takes the position that because the application was made one year and seventeen days after the rent money was collected, that the order was statute barred by s.144(4). The section uses the phrase in ss. 4 and ss. 1, "collected or retained". On the undisputed facts before us, the landlord retained the money after July 17th. The application was therefore filed within one year after the landlord continued to retain the money in contravention of the Act.
8 On that basis, we find that the members' decision cannot be said to be incorrect. The appeal on that issue is dismissed."
But the tenant must apply no later than within 1 year after vacating anyway.
See, for example, the Divisional Court’s decision in Vander Heide v. 1475654 Ontario Inc. c/o Investpro Management (September 26, 2006), Hamilton Docket No. DC-06-316 (Div. Ct).
"32. Such an interpretation would also be inconsistent with the Divisional Court’s decision in Vander Heide v. 1475654 Ontario Inc. (2006) (‘Vander Heide’). In Vander Heide, the Court distinguished the case before it from Dollimore on the basis of the Court’s analysis of “retention”. The tenant, in Vander Heide, applied seeking return of her last month’s rent deposit over two years after the tenancy had terminated. The Court found that in Dollimore “the landlord had committed an ongoing illegal retention”, whereas in Vander Heide, the act of retention was a discreet event occurring when the landlord retained the last month's rent deposit at the date of termination of the tenancy, when he was required to return it or apply it to the last month of the tenancy. Therefore, the tenant in that case had one year to apply for return of the funds commencing from the actual date of the landlord’s breach, the date that the tenancy terminated. The tenant’s appeal was dismissed as she had not applied within the time limitation."
"Another case that is instructive is Vander Heide v. 1475654 Ontario Inc. c/o Investpro Management (September 26, 2006), Hamilton Docket No. DC-06-316 (Div. Ct) (Vander Heide). In this case, the tenant had provided the landlord with a last month's rent deposit and the landlord continued to retain that deposit and had not paid the tenant any interest on that deposit. The tenant had vacated the rental unit and filed her application more than two years after she vacated. The landlord was under an obligation to apply the last month's rent deposit to the last month of the tenancy and to also pay the tenant any interest owed on that deposit. The tenant brought the application under section 144 of the TPA, which is substantially similar to section 135 of the RTA. The divisional court upheld the hearing member who found that the limitation period of one year had passed and the tenant’s application was statute barred. The Hearing Member focused on the fact that in Dollimore the tenant was a sitting tenant, whereas in Vander Heide the tenancy had terminated."
"55. In Dollimore v. Azuria Group Inc. [2001 Carswell Ont 4042] the Tenant paid one years rent in advance on July 10, 2000 and argued that the Landlord had collected or retained money illegally on July 27, 2001. The Board and the Divisional Court found that Section 135 did not apply and the application to the Ontario Rental Housing Tribunal was not barred. The Divisional Court referred to the act of retaining, as an ongoing act. As the illegal rent was still retained by the Landlord the tenant’s application could be considered. In addition the Tenant continued to be in possession of the rental unit at the time of the application.
56. In the decision of Vander Heide v. 1475654 Ont. Inc. (Sept. 26, 2006) Hamilton Docket No. DC-06-316, the tenant applied for the return of a last month rent deposit which had not been applied by the Landlord to the last month of the tenancy more than two years after the tenancy had ended. The application was found to be barred by Section 135. The case is different from Dollimore in that the Tenant was not in possession of the rental unit when the application was filed."
"12. The Tenant relied on various Board decisions that relied to some extent on the Divisional Court’s findings in Dollimore v. Azuria Group Inc.[4] In that case, the issue related to the landlord’s demand for one year of rent in advance and whether the rent collected was retained if not collected after the one limitation had expired. This differs from situations in which the collection of a charge forms a discrete event such as in Vander Heide v. 1475654 Ontario Inc., where the tenant applied two years after the tenancy had terminated to recover a last month’s deposit not applied to the last month of the tenancy.[5] I find that the present facts point to an ongoing retention of funds since February, 2016 rather than a singular discrete act, the recovery of which could be barred by statute."
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13. Can the common law principle of 'de minimis non curat lex' ever apply?
Probably not, since it is a clear statutory requirement to pay interest due, and RTA ss. 106(6) uses language like "shall", and RTA ss. 234(e) makes it an offence to fail to pay it. See an example below over $0.32 (though it was statute-barred due to filing too late).
"4. Effective November 1, 2009, the monthly rent increased from $760.00 to $774.00 and the Landlord used a portion of the interest, $14.00, to increase the rent deposit to the level of the current monthly rent, as permitted by subsection 106(7) of the Residential Tenancies Act, 2006 (the ‘Act’). After that deduction, the Landlord owed the Tenants interest of $0.32 for the period ending October 31, 2009. The Landlord should have paid this interest in November 2009 but he did not. Subsection 106(9) of the Act permitted the Tenants to deduct the unpaid interest from their rent, but they did not access that remedy before vacating the rental unit or file their application until March 28, 2011. For these reasons, the Tenants’ claim for the outstanding $0.32 is barred by the one-year limitation period in subsection 135(4) of the Residential Tenancies Act, 2006 (the ‘Act’)."
As stated by Ruth Carey in 44) TST-01025 (Re), 2008 CanLII 82434 (ON LTB), <https://canlii.ca/t/25tr1> at para. 8:
"8. What these provisions mean is that a landlord is entitled to allocate a portion of the interest due to the tenant to the deposit to top it up so that the deposit continues to equal the monthly rent. Subsection 106(9) states that where a landlord fails to pay to a tenant the interest that is remaining, the tenant may deduct it from his or her rent. In addition, the Act permits a tenant or former tenant to bring an application such as this one to recover the interest where the tenant has not deducted it from his or her rent. The Act also makes it an offence for a landlord to fail to pay interest on the deposit to a tenant. As a result, the obligation to pay interest to the Tenants is not one the Landlord should take lightly."
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