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Security deposits

Handle deposits legally and avoid costly penalties.

Last updated June 2025

2.75%

Security deposit interest rate for 2026
Set by the Rental Office each year

What you need to know at a glance

Security deposits are your primary financial protection as a landlord. When handled correctly, they provide security for unpaid rent and property damage. When handled incorrectly, they can cost you double the deposit amount plus legal fees. This guide ensures you get the protection you need while staying fully compliant.

Double deposit penalty

If you fail to either return the deposit or file an application within 15 days, you must pay the tenant double the deposit amount and lose all rights to claim against the deposit. This penalty is automatic and cannot be waived.

What is a security deposit?

A security deposit is a payment made by the tenant to the housing provider as a safeguard against damages or unpaid rent.

In Prince Edward Island, the handling of these deposits is governed by specific rules outlined in the Residential Tenancy Act.

This payment serves as a financial assurance for the housing provider, covering potential costs associated with property damages or unpaid rent during the tenancy period.

What you need to know

You have 15 days after a tenancy ends to return the deposit in full with interest, or apply to keep all or part of it. In cases of disputes, rental housing providers must file a Form 2B – Landlord Application to Determine Dispute with the Rental Office. Failure to return the security deposit or file an application within 15 days will result in the inability to make a claim against the security deposit, and the landlord will be required to pay the tenant double the amount.

Maximum amounts

Monthly tenancy: Up to 1 month’s rent
Weekly tenancy: Up to 1 week’s rent

When you can keep security deposits

You may retain deposits for

  • Unpaid rent through the end of tenancy
  • Property damage beyond normal wear and tear
  • Cleaning costs if unit left unreasonably dirty
  • Repair costs for tenant-caused damage
  • Unpaid utilities if tenant responsible in lease
  • Outstanding orders from Rental Office against tenant

Normal wear and tear

You cannot charge for normal wear and tear, which includes:

  • Minor scuff marks on walls
  • Carpet wear in traffic areas
  • Faded paint from normal use
  • Small nail holes from pictures
  • Worn fixture finishes
  • Minor door/window operation wear

Steps to retain a deposit legally

  1. Attempt negotiation with tenant first
  2. Document damages/costs with photos and receipts
  3. File Form 2B application within 15 days of tenancy end
  4. Serve tenant with copy within 5 days of filing
  5. Attend hearing with evidence supporting your claim
  6. Follow Rental Office order for final resolution

Success tip

Successful landlords treat security deposits as a professional service, not a profit center. Clear communication, fair treatment, and proper procedures build trust that leads to better tenant relationships and referrals for your other properties.

Best practice

Always try to reach agreement with the tenant first. If they agree in writing to let you keep all or part of the deposit, you don't need to file an application. Get any agreement in writing and keep it with your records.

On this page

Frequently asked questions

Under what conditions can a landlord retain the security deposit without filing an application?

A landlord can retain the security deposit in two scenarios:

  • If there's a written agreement with the tenant for the landlord to keep all or part of the deposit.
  • If there's an existing order from the Director that remains unpaid for rent or damages to the unit.

In situations other than these, landlords are required to file a Form 2B – Landlord Application to Determine Dispute with the Rental Office to retain any part of the security deposit.

Does the security deposit earn interest, and what are the return procedures?

Yes, it earns interest. Landlords have 15 days after tenancy ends to return the deposit in full with interest, or apply to keep all or part of it. In cases of disputes, landlords must file a Form 2B – Landlord Application to Determine Dispute with the Rental Office.

Security Deposits Interest Rates
Interest Rate Calculator for Security Deposits

How are security deposits handled and documented?

Landlords must provide a written receipt for the deposit, including the amount, date, and rental unit details. Excess payments beyond rent due are treated as security deposits, or as partial rent if they exceed the maximum allowed deposit amount.

Security deposits must be deposited into an interest-bearing account at a financial institution within two banking days of receipt.

For landlords with three or more units, this must be a trust account exclusively for security deposits.

What is the maximum amount a landlord can charge for a security deposit, and what happens if it's overcharged?

The maximum amount for a security deposit depends on the rent frequency. For tenancies with weekly rent payments, the maximum deposit is equivalent to one week's rent. For all other tenancies, it's limited to one month's rent.

If a landlord charges more than the allowed amount, the tenant has the right to deduct the excess from their rent. Alternatively, tenants can apply to the Director under section 75 for recovery of the overcharged amount.

Can a Landlord Require a Security Deposit, and are there Restrictions?

Yes, a landlord in Prince Edward Island can ask for a security deposit at the time of entering into a tenancy agreement. However, there are specific restrictions:

  • The request for a security deposit can only be made when the landlord and tenant are entering into the tenancy agreement. This means that landlords cannot ask for a deposit at a later stage of the tenancy.
  • A landlord is prohibited from requiring more than one security deposit for a single tenancy agreement.
  • The tenancy agreement cannot include any terms that automatically entitle the landlord to retain all or part of the security deposit at the end of the tenancy. This ensures that the return of the deposit is based on the condition of the property and adherence to the agreement, rather than being predetermined.
Are there consequences for landlords not complying with security deposit rules?

Failure to return the security deposit or file an application within 15 days will result in the inability to make a claim against the security deposit, and the landlord will be required to pay the tenant double the amount.

How should a landlord repay the security deposit to the tenant?

Landlords have several options to return a security deposit. They can mail a cheque to the tenant at a provided address, either via ordinary or registered mail. Alternatively, the landlord can hand over the deposit directly to the tenant or opt for an electronic transfer or payment method.

What if a tenant doesn't provide a forwarding address and the landlord doesn't have other contact information for the return of the security deposit?

If a tenant fails to provide a forwarding address to the landlord within six months after the end of the tenancy, and the landlord has made reasonable efforts to repay the deposit as per clause 40(5)(a), the landlord is entitled to keep the security deposit. In such cases, the tenant forfeits their right to the deposit.

Forms for this guide

Form 2B

Landlord Application to Determine Dispute

Fillable PDF

Download Form 2B

This guide provides general information only and is not legal advice. For specific legal questions, consult a qualified lawyer.

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