Interest owed to tenant on last month’s Rent deposit
A question that I get from time to time is how to calculate the interest owing on a last month’s rent deposit. The question is usually complicated by a multi-year tenancy where no interest has been paid during the entire tenancy. How do you figure out how much interest is owed to the tenant?
The law that governs last month’s rent interest is the Residential Tenancies Act and specifically section 105(6) RTA. That section provides that a landlord shall pay interest to the tenant, annually, on the Amount of the rent deposit at a rate equal to the guideline interest determined under section 120 that is in effect at the time payment becomes due.
The Guideline Interest amount is the amount that a landlord may increase the rent by every year. That percentage is set annually by the government and is published annually. These are the annual percentages for the last 5 years.
2019 1.8%
2018 1.8%
2017 1.5%
2016 2.0%
2015 1.6%
2014 0.8%
2013 2.5%
When the landlord does not pay the interest annually the amount owed is not compounded and interest does NOT run on the interest. Accordingly, if you are calculating a multi-year amount of last month rent interest you calculate each year separately and then add all those amounts together.
EXAMPLE
Basic Facts for example calculation
The amount of rent on deposit is $1000.00
Tenancy started: January 1, 2014
Interest Never Paid
Annual rent never increased
Tenancy Ended Legally on November 30, 2018
Calculation
Year 2014 $1000 x 0.8% = $8.00 (1)
Year 2015 $1000 x 1.6% = $16.00 (2)
Year 2016 $1000 x 2.0% = $20.00 (3)
Year 2017 $1000 x 1.5% = $15.00 (4)
Year 2018 $1000 x 1.8% = $ 18.00 /12 = $1.50 x 10 months = $15.00 (5)
The amount of interest owed to the tenant on the deposit for the entire tenancy is 1+2+3+4+5 which totals $74.00.
Note that each year's interest is just added to the subsequent years interest without compounding the interest (i.e. no interest on interest). This is known as simple interest.
WHAT HAPPENED IN YEAR 2018 (i.e. #5)?
The interest owed must take into account the fact that the deposit was not held by the landlord for the entire year. Because the tenancy ended on November 30, 2018, there were only 11 months in the tenancy in the year 2018. You will notice, that the interest calculated is only for 10 months and not 11 months. The reason for this is that the last month’s rent deposit was applied to the last month of the tenancy–meaning the landlord became entitled to the money on November 1, 2018, and therefore it was no longer a deposit as of that date.
WHAT IF THE RENT WAS INCREASED DURING the tenancy?
During the course of a tenancy a landlord may increase the rent in accordance with the Residential Tenancies Act. When the landlord does this, the landlord may also require the tenant to increase the rent deposit to the legal amount of the current rent. As the rent increase (for most rental units now) is the exact same as the interest that is payable on the deposit, it is often the case that the interest payable is just added to the deposit and therefore nothing is owing to the tenant BUT at the same time the deposit is increased to the current rent amount. If the landlord does not take an annual rent increase or does not take the full amount authorized there will then be an interest amount owing to the tenant.
Prior to recent changes, there were many rental units that were exempt from the annual guideline amount. Those units may have had the rent increased by more than the interest payable on the deposit. In those situations, the rent interest may be insufficient to cover the shortfall between the deposit and the lawful rent. Unfortunately, the match between interest payable and maximum rent increases is a again set to diverge as the current government is exempting very new buildings and rental units from the maximum guideline amount on the basis that this will spur the construction of new rental units.
Michael K.E. Thiele
www.ottawalawyers.com
A question that I get from time to time is how to calculate the interest owing on a last month’s rent deposit. The question is usually complicated by a multi-year tenancy where no interest has been paid during the entire tenancy. How do you figure out how much interest is owed to the tenant?
The law that governs last month’s rent interest is the Residential Tenancies Act and specifically section 105(6) RTA. That section provides that a landlord shall pay interest to the tenant, annually, on the Amount of the rent deposit at a rate equal to the guideline interest determined under section 120 that is in effect at the time payment becomes due.
The Guideline Interest amount is the amount that a landlord may increase the rent by every year. That percentage is set annually by the government and is published annually. These are the annual percentages for the last 5 years.
2019 1.8%
2018 1.8%
2017 1.5%
2016 2.0%
2015 1.6%
2014 0.8%
2013 2.5%
When the landlord does not pay the interest annually the amount owed is not compounded and interest does NOT run on the interest. Accordingly, if you are calculating a multi-year amount of last month rent interest you calculate each year separately and then add all those amounts together.
EXAMPLE
Basic Facts for example calculation
The amount of rent on deposit is $1000.00
Tenancy started: January 1, 2014
Interest Never Paid
Annual rent never increased
Tenancy Ended Legally on November 30, 2018
Calculation
Year 2014 $1000 x 0.8% = $8.00 (1)
Year 2015 $1000 x 1.6% = $16.00 (2)
Year 2016 $1000 x 2.0% = $20.00 (3)
Year 2017 $1000 x 1.5% = $15.00 (4)
Year 2018 $1000 x 1.8% = $ 18.00 /12 = $1.50 x 10 months = $15.00 (5)
The amount of interest owed to the tenant on the deposit for the entire tenancy is 1+2+3+4+5 which totals $74.00.
Note that each year's interest is just added to the subsequent years interest without compounding the interest (i.e. no interest on interest). This is known as simple interest.
WHAT HAPPENED IN YEAR 2018 (i.e. #5)?
The interest owed must take into account the fact that the deposit was not held by the landlord for the entire year. Because the tenancy ended on November 30, 2018, there were only 11 months in the tenancy in the year 2018. You will notice, that the interest calculated is only for 10 months and not 11 months. The reason for this is that the last month’s rent deposit was applied to the last month of the tenancy–meaning the landlord became entitled to the money on November 1, 2018, and therefore it was no longer a deposit as of that date.
WHAT IF THE RENT WAS INCREASED DURING the tenancy?
During the course of a tenancy a landlord may increase the rent in accordance with the Residential Tenancies Act. When the landlord does this, the landlord may also require the tenant to increase the rent deposit to the legal amount of the current rent. As the rent increase (for most rental units now) is the exact same as the interest that is payable on the deposit, it is often the case that the interest payable is just added to the deposit and therefore nothing is owing to the tenant BUT at the same time the deposit is increased to the current rent amount. If the landlord does not take an annual rent increase or does not take the full amount authorized there will then be an interest amount owing to the tenant.
Prior to recent changes, there were many rental units that were exempt from the annual guideline amount. Those units may have had the rent increased by more than the interest payable on the deposit. In those situations, the rent interest may be insufficient to cover the shortfall between the deposit and the lawful rent. Unfortunately, the match between interest payable and maximum rent increases is a again set to diverge as the current government is exempting very new buildings and rental units from the maximum guideline amount on the basis that this will spur the construction of new rental units.
Michael K.E. Thiele
www.ottawalawyers.com
