Renting vs. Owning: A Comprehensive Guide to Hot Water Tanks in Canada

In the world of homeownership, one essential yet often overlooked aspect is the hot water tank (also referred to as a water heater). A reliable and efficient hot water supply is crucial for daily comfort and domestic functionality. As homeowners in Canada navigate the decision-making process, a key consideration emerges: should you rent or own your hot water tank? This is a decision that will have implications for both yourself and future owners of the property.

In this blog, the teams at Caboodl and Doormat explore the various facets of hot water tank ownership and rental in Canada, delving into the advantages, disadvantages, and key considerations associated with each option. Whether you're a seasoned homeowner looking to upgrade your current system or a first-time buyer entering the world of residential property, understanding the intricacies of hot water tank choices is crucial for both your home's functionality and your financial well-being.

Hot Water Tanks 101

Before we dive into what you should consider when deciding between a rental and purchase, it’s important to understand the basics of hot water tanks. Firstly, the two most common  types of hot water heaters are storage tank water heaters and tankless water heaters. Recently, more energy efficient storage pump water heaters have also come to market. Each of these come with their own pros and cons that we would highly recommend you research. 

Additionally, you’ll need to consider factors such as size and capacity, energy efficiency, fuel type, and maintenance requirements. This provides a number of different variations of water tanks for you to consider, in addition to the types (eg. electric hot water tanks, natural gas hot water tanks, and propane hot water tanks). Long story short, there is a lot to consider over and above rent vs. buy, and doing your research is important to set yourself up for future success. Check out this buyer's guide to help better educate yourself on the variables you should consider.

Hot Water Tank Rental vs. Hot Water Tank Ownership

When it comes to deciding between a hot water tank rental, versus a hot water tank purchase, there are a number of things you should take into consideration. In this section, we'll dive into the nuances of both options, exploring the advantages and disadvantages to help you make an informed choice.

Hot Water Tank Rental

Pros:

• Low upfront costs: Renting a hot water tank typically involves minimal upfront costs compared to purchasing, which can be beneficial for homeowners looking to manage their initial expenses.

• Maintenance included: Rental agreements often include maintenance services, ensuring that any repairs or issues are handled without additional costs to the homeowner.

Cons:

• Long-term costs: While the initial costs are low, rental fees accumulate over time and usually exceed the cost of purchasing a hot water tank in the long run.

• Contractual obligations: Rental agreements typically come with long-term contracts, and terminating the contract early may incur significant fees. 

• Registration on title: Most rental companies include a clause that allows them to register a Notice of Security Interest on title, securing their interest in the property. They will register this without notifying the homeowner. This means that when the property is sold, the contract will need to be assigned to the new homeowner or paid out by the existing owner.

Hot Water Tank Purchase

Pros:

• Ownership benefits: Purchasing a hot water tank means you own the equipment, contributing to the overall value of your property. This will save long-term homeowners money and help you when it comes time to sell the property as prospective buyers won’t need to assume the rental contract.

• Potential cost savings: While the upfront costs are higher, owning a hot water tank can lead to cost savings over time, as there are no recurring rental fees.

• Flexibility: As the owner, you have the flexibility to choose the make and model that aligns with your preferences and energy efficiency goals.

Cons:

• Higher initial costs: Purchasing a hot water tank involves a higher upfront investment, which may be a significant factor for those looking to manage initial expenses.

• Maintenance costs: Homeowners are responsible for maintenance and repairs, potentially incurring additional costs over the lifespan of the hot water tank.

• Technological advancements: The technology in hot water tanks evolves over time. Owners may need to invest in a new unit to access the latest energy-efficient features. While this is a consideration, it should also be noted that hot water tank rental companies usually aren’t motivated to update the rental tanks until they no longer function.

As you can see, there is a lot to consider when deciding between a hot water tank rental and a hot water tank purchase. Below, we’ll dive into more detail about contracts and legal considerations if you were to pursue a rental, but before you make a decision, make sure you think through your own personal situation and what option will work best for you.

Understanding Hot Water Tank Rental Contracts

Before you decide to rent a hot water tank, you should take the time to understand common themes of their rental contracts. While these contracts will vary from provider to provider, there is consistency in the fact that they are dense and it can be easy to gloss over everything when reading them. It’s important that you don’t because whether you’re going with Reliance hot water tank rental, Enercare hot water tank rental, or a smaller player, the contracts are typically not consumer-favourable. Here are some key things to pay attention to in the contracts:

Contract Duration and Termination

• Term length: It really depends. More often than not, the contracts are open-ended, only expiring when the unit reaches the end of its useful life. There is the potential for fixed term length options but they are not common.

• Early termination fees: Understand the consequences of terminating the contract before its completion. Early termination fees may apply, impacting your overall cost if you decide to part ways with the rental agreement prematurely. To help with this, your rental company should maintain a buyout schedule, allowing you to understand the cost to terminate your contract before the end of life of the unit.

Monthly Rental Fees and Charges

• Base rental fee: Clearly understand the monthly rental fee and whether it is subject to change during the contract period. Some contracts include fixed rates, while others may have provisions for inflationary increases.

• Additional charges: Be aware of any additional charges, such as maintenance fees or service charges. Ensure that these are clearly outlined in the contract to avoid unexpected expenses.

Maintenance and Repairs

• Responsibilities: Clarify who is responsible for maintenance and repairs. Rental agreements often include maintenance services, but it's essential to know the extent of coverage and whether there are any out-of-pocket expenses for the homeowner. This is especially important for tankless water heaters which have a longer useful life than hot water tanks but require maintenance more regularly.

• Emergency services: Check if emergency services, such as after-hours repairs, are covered by the rental agreement. Understanding the availability of these services can be crucial in ensuring a timely resolution of any issues.

End-of-Contract Considerations

• Ownership options: Some rental contracts offer the option to purchase the hot water tank at the end of the term. Evaluate whether this is a viable and cost-effective choice for you.

• Return procedures: If you choose not to renew the rental agreement, understand the procedures for returning the equipment. Ensure that the process is clear, and there are no unexpected requirements or costs.

• Notice of Security interest: As mentioned earlier, rental companies will secure their interest in the property with a Notice of Security on title. They will register this without notifying the homeowner. Be sure to review the contract thoroughly to find this particular clause or ask the provider directly about its existence.

Thoroughly reviewing the contract is incredibly important to make sure you don’t get locked into anything that you’re not comfortable with. It is in the provider's best interest to get you into a long-term contract that is difficult to break so you need to make sure you’re looking out for your best interests.

Financial Considerations

Let’s face it. Homeownership is expensive. For many homeowners, the most important consideration when making a major purchase is cost. And while there are other considerations when making a major purchase, be sure that you understand the true cost of each option. When it comes to replacing your water heater you have three choices: purchase (when you purchase the unit outright), rent/lease (when you pay a monthly fee to rent the unit from a rental company), and finance (when you borrow the funds to purchase the equipment and pay the money back over a period of time, with interest). 

Comparing Costs

When considering the true cost to you as the homeowner you need to take into account several important factors, such as the type of water heater (tank vs tankless), operating costs, repairs and maintenance, etc. The total cost of your water heater includes all the costs to purchase/rent the unit, the monthly operating costs (natural gas and electricity), the repair and maintenance costs, buyout fees, and interest costs (where the unit has been financed).

Maintaining a Water Heater

Water heaters are relatively low maintenance and easy to care for. The T&P (temperature & pressure) relief valve should be tested regularly and full maintenance including a tank flush and inspection of the sacrificial anode can help extend the life of your tank.

Your rental contract includes annual service on your water heater but does not include flushing the unit or checking the sacrificial anode. Both require significant time to drain the unit before they can be performed. 

Over the life of a water heater, a rental company would rather replace the unit a few years earlier than perform ongoing maintenance because they don’t benefit from units running more efficiently (through lower gas and electrical bills) and the more time they spend maintaining your water heater the less profit they make.

Repairing a Water Heater

If you purchase your water heater then you are responsible for the cost of any repairs for the unit. Repairs for a water heater include repairs to the T&P valve, sacrificial anode, dip tube, and exhaust motor. Simple repairs (T&P, dip tube, sacrificial anode) will cost between $200-$250 while a new exhaust motor may be upwards of $600-$700.

If you rent, your rental company is required to complete all repairs resulting from the normal use of the unit.

Total Cost

Most rental companies have a good variety of quality options for their rentals so let’s compare the costs of renting and purchasing the same equipment. 

A major consideration in the rent vs. buy debate is the fact that a rental contract typically does not have a fixed term. This means that the contract will continue until you cancel your contract and buyout the remaining value of the water heater. To help illustrate the impact of this, consider that an 11-year-old water heater has a $845 buyout fee to break your contract. Even at 14 years (beyond the useful life of most units) you will still be required to pay an additional $237 to cancel your contract.

Let’s consider the costs 12 years after installation for a typical 50 gallon, natural gas water heater tank. 

Lease and Finance calculated as Present Value of future dollars spent. All options use 4% discount rate on future expenses. Finance option is 5 year loan term @ 10% interest. Repairs completed in year 6.

If we assume that the water heater in this scenario lasted 15 years, your total cost under the lease agreement would be $4,877 while the costs under the Buy and Finance options remain the same. If it lasts for 20 years then the lease cost would be $5,840! That’s a 72% premium over buying the unit outright and even 50% more expensive than financing.

Open Billing Program

Historically, many people have not even known that they were paying for a water heater. Enbridge, the natural gas provider, has an open billing program that allows 3rd parties (HVAC contractors) to charge clients for water heater rentals through your Enbridge bill. These charges show up as a separate line item in your Enbridge bill with the title “Charges from Other Companies.” As a result, many homeowners aren’t aware that they are renting their tank. 

The good news? Enbridge has ended their Open Billing Program, effective December 21, 2023. So, all rental clients will need to be made aware of their monthly billing charges and receive invoices directly from their rental company as of October 31, 2024.

Consumer Protections and Legal Considerations

In the realm of hot water tank rentals and purchases, understanding your rights and protections as a consumer is key. Lets dive into the legal considerations and consumer protections that should shape your decision-making process.

Regulatory Compliance

• Certifications and Standards: Ensure that any hot water tank you consider meets the required safety and efficiency standards set by regulatory bodies. Look for certifications such as CSA (Canadian Standards Association) to guarantee compliance with industry norms.

• Installation Codes: Familiarize yourself with local building codes and regulations governing the installation of hot water tanks. Compliance with these codes is not only essential for safety but may also be a requirement for warranty validity.

Contractual Transparency

• Full Disclosure: Before entering into any agreement, whether it be a rental or purchase, insist on full disclosure of all terms and conditions. A reputable provider should be transparent about costs, fees, and any potential changes during the contract period.

• Written Agreements: Always opt for written agreements that clearly outline all aspects of the transaction. Verbal promises should be documented, and any amendments to the contract should be made in writing.

Consumer Rights

• Right to Cancel: Familiarize yourself with your right to cancel a contract within a specified timeframe, as outlined by consumer protection laws. Understanding this provision can be crucial if you change your mind shortly after entering into an agreement.

• Warranty Information: Examine the warranty terms associated with the hot water tank. Consumer protection laws often mandate minimum warranty periods for appliances, and understanding your rights in case of malfunctions or defects is essential.

Dispute Resolution

• Dispute Resolution Mechanisms: Check for provisions in the contract that outline dispute resolution mechanisms. Reputable providers often include steps for resolving issues, such as mediation or arbitration, which can protect your interests in case of conflicts. Be aware that decisions by an arbitrator may not be open to appeal by a court, depending on the wording of the contract.

• Complaint Procedures: Research the company's complaint procedures and customer service responsiveness. A provider with a robust customer support system is more likely to address your concerns promptly and effectively.

Data Privacy

• Privacy Policies: Ensure that the company handling your hot water tank rental or purchase adheres to data protection and privacy laws. Understanding how your personal information is collected, stored, and used is crucial in maintaining your privacy.

• Opt-Out Options: Check if the provider gives you the option to opt out of any data-sharing practices that are not essential for the transaction. Protecting your privacy should be a priority throughout the engagement.

Reviewing Consumer Feedback

• Online Reviews: Research customer reviews and testimonials to gauge the reputation of the hot water tank provider. Real-world experiences shared by other consumers can provide valuable insights into the company's practices and customer satisfaction levels.

• Consumer Protection Agencies: Familiarize yourself with local consumer protection agencies that can provide guidance and intervene in case of disputes. Knowing where to turn for assistance can be invaluable in protecting your rights as a consumer.

Unfortunately, not all providers operate in an ethical manner and/or a manner that keeps customers (ie. you) top of mind. It’s important that you understand the contract and your legal rights within that contract to help you make an informed decision.

I’m Stuck With a Rental, Now What?

You can either buy out your contract or do your best to maintain the existing unit to minimize costs. A good time to buyout the contract is around years 11 to 13 as the buyout cost will be closeto a full year of your monthly rental payments. You can continue to use it until replacement is needed only without paying a monthly rental amount. 

Buyout Your Contract

If you find yourself stuck in a contract with a rental appliance company, you may be obligated to pay out the remainder of the contract price in order to end the agreement. The costs can sometimes seem exorbitant, and you may need to closely consult the contract you signed to determine whether the costs they are claiming are legitimate. You are entitled to a copy of the rental agreement you signed, and the appliance company should be able to provide you with one upon request. 

Unfortunately, many rental appliance dealers do not strictly adhere to the law, so if you feel you were misled or taken advantage of when you entered the contract, you may have legal recourse to exit the contract. The best option in these circumstances is to consult a lawyer.

Many homeowners are not aware that their rental appliance has been secured on title until they enter an agreement to sell the property. In those circumstances, the homeowner may feel they do not have time to argue an unjust bill with the appliance company, and decide to pay whatever fee the company requests just to clear the security from title.

If you are selling a property with a rental hot water heater, you should strongly consider requiring the buyer to take over the rental contract as part of the Agreement of Purchase and Sale, so that you do not have to pay out the contract when you sell the house. 

Maintain the Unit

Unfortunately you can’t do much about the cost of the rental agreement but you can make sure your unit operates as efficiently as possible. Regular maintenance will at least reduce the operating costs. 

To maintain the unit, be sure to book your annual maintenance.Request they perform a tank flush as part of your regular maintenance. If they refuse, reference the owners manual for your unit which will recommend this maintenance regularly. Be persistent. Have them confirm a schedule for regularly flushing. 

Summing It Up

There is a lot to consider when deciding between a hot water tank rental and a hot water tank purchase. While it does come down to your own personal circumstances, in general, we would recommend purchasing a hot water tank rather than renting one as it gives you much greater flexibility in both a situation where you plan to own your home long-term or may decide to sell it. 

That said, there are situations where it may be beneficial to move forward with a rental such as when you don’t expect to own the property for an extended period of time or if you feel you would benefit from maintenance services. It really boils down to your financial situation, long-term goals, and personal preferences. Consider factors such as your budget, how long you plan to stay in your current home, and your willingness to take on maintenance responsibilities. The decision you make today will have a lasting impact on your home's comfort and your financial well-being.

Checklist for When to Consider Renting

✅ No available options to buy or finance

✅ Water heater is being installed in a rental property (or any property where expenses are tax-deductible)

✅ You will be selling the property in the short-term (but be aware that savvy buyers may ask you to buy out the unit first)

The team at Caboodl can support you in making the best decision for you. With their home maintenance support services, you’re in good hands year-round, and you have a team that cares about your long term needs, rather than just a short-term sale. At Doormat, we focus on real estate law, supporting you with closing your property purchase, sale, refinance, or ownership change. We often deal with hot water tank rental transfers on purchases and sales and are well-equipped to advise you through the process.