By law, in Alberta, a landlord has to deliver a damage/security deposit back to a tenant, within 10 business days of the tenancy ending, or provide an invoice for deductions. A landlord can withhold funds from a deposit to cover owed rent if that is stated in the lease, however, in a situation where no lease was ever signed, I am not sure it would stand up in court, for the landlord to withhold the deposit for rent, as this was never clearly defined.
Kind of stupid on both parties here, to be exchanging funds, without a lease being signed. If your friends lease was to begin November 1st, there is not a chance a court would allow the landlord to keep the deposit for rent, when they have plenty of time to find someone else to occupy the rental.
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