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Interest on Security Deposits in Alberta: First Interest Rate Increase Since 2009
Author: justin-monahan posted in: Real Estate
Since January 1, 2024, residential landlords who collect security deposits from tenants must pay an interest rate of 1.6% on that deposit. The landlord must then give the tenant that interest payment either at the end of every year, or at the end of the tenancy. If it is the latter, then the landlord and tenant must agree in writing to confirm the same.
The change to interest on security deposits – the first interest rate increase since January 1st, 2009 – was a major step taken by the Ministry of Service Alberta and Red Tape Reduction. While the motivation for this increase is unclear, the Service Alberta and Red Tape Reduction Ministry business plan for 2024 states that they are focused on protecting “individuals and businesses in an increasingly complex and changing economic and social environment.”
There are certain steps that must legally be taken by residential landlords when it comes to this new interest rate.
What Changed Since January 1, 2024
The mandate for landlords to collect and remit interest on security deposits comes from the Residential Tenancies Act (the “Residential Act”) and Mobile Home Sites Tenancies Act (the “Mobile Home Act”), which are the two acts in Alberta that set the foundation for residential landlord-and-tenant relationships.
There have been no changes to the actual text of the Residential Act and Mobile Home Act. Instead, the Ministry of Service Alberta and Red Tape Reduction affected the change by amending the Security Deposit Interest Rate Regulation (the “Regulation”).
The Regulation refers to both the Residential Act and Mobile Home Act. In short, regulations are sometimes used in conjunction with certain statutes. In this case, the Regulation refers to both Section 45 of the Residential Act and Section 50 of the Mobile Home Act, which are the sections that cover security deposit interest rates.
Section 2 of the Regulation establishes the interest rate for a calendar year by way of a formula. The new interest rate of 1.6% will apply until December 31, 2024. There is currently no information as to whether the interest rate will change at the beginning of 2025.
The following information sets out the process of obtaining security deposits, the interest rate calculation, and how to return the security deposit to the tenant.
A Brief Refresher on Security Deposits for Landlords
Trust Account – Section 44 of the Residential Act and Section 49 of the Mobile Home Act
As soon as a landlord receives the security deposit from their tenant, they must deposit it within two banking days into an interest-bearing trust account at either a bank, treasury branch, credit union, or trust corporation in Alberta.
Under section 44(5) of the Residential Act, a landlord is to keep security deposit records with respect to each tenant that shows the date of receipt of the security deposit, the date it was deposited into a financial institution, particulars of interest payable and paid to the tenant, and particulars of disposition of the security deposit. Furthermore, a landlord is to keep these records for at least three years after the expiration or termination of the tenancy to which they relate.
No such requirement to keep records currently exists under the Mobile Home Act.
Interest on Security Deposits – Section 45 of the Residential Act and Section 50 of the Mobile Home Act
Landlords are to pay the tenant interest calculated at the prescribed rate, which is currently 1.6%, on a security deposit. This interest is to be paid annually to the tenant, unless a tenant and landlord agree in writing that the interest will be paid to the tenant on expiration or termination of the tenancy instead. It is important to note that the agreement in changing the terms of when a security deposit interest is to be paid cannot be verbal, as the Residential Act and Mobile Home Act both state that it must be in writing.
A landlord also can agree to pay a higher interest rate than what is required by the Regulation. That being said, a landlord, cannot opt out of paying interest on a security deposit altogether or enter into an agreement to pay less interest.
To assist in calculating the amount of interest that is owed to the tenant, the Government of Alberta has created a security deposit interest chart and calculator: https://www.servicealberta.ca/interest-chart.cfm.
Return of Security Deposit – Section 46 of the Residential Act and Section 51 of the Mobile Home Act
Once a tenant gives up possession of the residence or mobile home, a landlord must, within 10 days, take action to return the security deposit. The return of the security deposit must be in accordance with the conditions that were agreed to by both the landlord and tenant.
KMSC Law Can Help Navigate the New Interest Rate Regulation
In conclusion, the recent amendment to the Security Deposit Interest Rate Regulation marks a significant development for residential landlords and tenants in Alberta. With the new interest rate of 1.6% in effect since January 1, 2024, landlords must now navigate the updated requirements to ensure compliance in handling their security deposits. Contact KMSC Law today for a free consultation and learn how we can help you navigate the amendment.
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