Prepayment of Rent

Residential Tenancies Act, 2006, S.O

106 (1) A landlord may require a tenant to pay a rent deposit with respect to a tenancy if the landlord does so on or before entering into the tenancy agreement.

(2) 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.

(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).

(4) A new landlord of a rental unit or a person who is deemed to be a landlord under subsection 47 (1) of the Mortgages Act shall not require a tenant to pay a rent deposit if the tenant has already paid a rent deposit to the prior landlord of the rental unit.

(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.

(10) A landlord shall apply a rent deposit that a tenant has paid to the landlord or to a former landlord in payment of the rent for the last rent period before the tenancy terminates.

SWT-01750-17 (Re), 2017 CanLII 51511 (ON LTB)

10. Pursuant to section 106 of the RTA, a Landlord may require a tenant to pay a rent deposit with respect to a tenancy if the landlord does so on or before entering into the tenancy agreement. However, section 106(2) provides:

(2) 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.

11. In the case before me, the Landlord clearly collected more than a month’s rent. However, the Divisional Court has held that the collection of a prepayment of rent is only illegal where the prepayment is not voluntary.

12. In Royal Bank of Canada v. MacPherson (2009) O.J. No. 3806, where the Tenant voluntarily prepaid rent, the Divisional Court agreed with the Board’s finding that the tenant was entitled to credit for a bona fide prepayment of rent and could not be evicted by a mortgagee in possession. In so doing, the Court held

i. the plain language of these sections does not make pre-payment by a tenant of a rent in excess of one month's rent illegal. It makes the act of a landlord demanding such prepayment illegal. [at para.27]

13. The approach was confirmed by the Divisional Court again in Corvers v. Bumbia, 2014 ONSC 985 (CanLII). The question before me then is whether the prepayment of rent in this case was voluntary.

Corvers v. Bumbia, 2014 ONSC 985 (CanLII)

[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.