What New Security Deposit Law Means for Landlords

by | Jan 31, 2011 | Rental Property Management Tips

A bill pending in Ontario’s legislature may give landlords there a benefit that has been sorely lacking — the right to collect a damage deposit from tenants.  If this bill passes, what would  it mean for landlords?

In a word —accountability.

On the part of tenants, that is.  Under the current Act, tenants are not required to pay a deposit to guarantee they will return the rental property in good condition. And too many times, tenants don’t return the property in good condition.

A landlord could spent weeks, if not months, chasing after a tenant who causes damage.

But put that deposit money on the line, and tenants have no choice but to meet their responsibilities under the tenancy agreement. A damage deposit not only offers leverage when it comes to cleaning a unit thoroughly and repairing any damage, it also provided landlords with an immediate source to pay for those repairs if the tenant does not.  No more waiting for a hearing or shelling out fees.

The bill in its current form provides that a landlord may collect a damage deposit to be used to cover the “cost to repair or, where repairing is not reasonable, to replace any property relating to a rental unit or residential complex that was wilfully or negligently damaged by a tenant, another occupant of the rental unit or a person whom the tenant permitted in the residential complex.”

The deposit cannot be applied to “ordinary wear and tear”, a phrase that the government will define in more detail later.

Landlords will have to change their leasing checklists to include a requirement that they disclose information about the damage deposit before entering into a tenancy agreement. The landlord and the tenant will have to agree in writing as to the rental unit’s condition on the day that the tenancy begins.

The maximum amount that can be charged for a damage deposit under the current version of the bill is 25 per cent of one month’s rent.  The funds will need to be placed in an interest-bearing account, and the accrued interest must be paid to the tenant annually if still residing in the property.

The balance of the deposit, and any remaining interest, must be returned to the tenant no later than 15 days after a tenancy terminates.

Once the tenant moves out, the landlord can deduct all or part of the allowable damages immediately from the deposit, without the need to appear before the Board.  However, if a tenant makes a complaint to the Board over the deductions, it is the landlord’s burden to justify the deductions.  In that event, the landlord will be required to submit at least the following information:

1. A copy of the written agreement concerning the condition of the rental unit before the tenancy began.

2. Any receipts, estimates or any other information describing the costs that the landlord has incurred or will incur for the repair of or, where repairing is not reasonable, the replacement of damaged property.

3. Any photos of the damaged property.

4. An inspection report, if any, indicating the rental unit’s condition before the tenancy began.

The Ontario Landlords Association is encouraging Ontario landlords to weigh in and support this measure so it becomes law.  For more on what you can do to make a difference, contact the Ontario Landlords Association.

This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).

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Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

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