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Water Heaters: Cost of Renting vs Buying vs Buyouts

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In Ontario, many homeowners rent their water heater – but this is not a common practice elsewhere in Canada.

How much does it cost to rent a water heater?

Ontario residents can rent a hot water tank from Reliance Home Comfort or Enercare (previously Direct Energy) for $20 to $35 per month depending on the size of the tank. Tankless water heater rentals are commonly found in new builds and cost $35 to $50 per month.

In addition, the agreements stipulate that these charges are increased every year by the greater of 3.5% and Ontario CPI (Reliance) and CPI + 2% (Enercare).

Compare that to the $600 to $1000 to buy a new hot water tank (HWT) and $400 to $600 to have it professionally installed for a total of $1000 to $1600 and it quickly becomes apparent that owning is better than buying after around the 3 to 4 year mark.

How much does a hot water heater cost?

Tank

A traditional 40 to 60 gallon electric tank costs between $500 to $1,000, while a natural gas tank is $700 to $1,400. High efficiency versions go for $1,500 to $2,000.

Tankless

An electric tankless water heater costs $600 to $900, while a natural gas version is $1,700 to $2,500.

Installation cost

The following are the installation costs for a 40 or 50 gallon tank that is atmospherically vented:

InstallerCost
Home Depot$513 to $594
Lowes$450
Local Plumber$500
Home Depot’s price depends on the unit: Rheem Performance Series (6 year) vs Rheem Performance Platinum series (12 year).

Reliance hot water heater rental cost – our experience

When we purchased our first home in 2017, we were not advised by anyone – not the real estate agent, lawyer or even the home inspector that it came with a rented tank.

Reliance has been charging us $64.65 per quarter – so $21.55 per month or $258.60 per year for our John Wood 40 gallon, natural gas tank which costs about $1000 brand-new:

Renting vs buying a hot water tank

Renting a water heater is often a poor value for consumers and purchasing your own can result in substantial savings over time, according to the Competition Bureau.

However, there are a few scenarios in which a case can be made for renting instead of buying – particularly you cannot afford the upfront cost of a new unit or if your water is very hard and you do not have a water softener causing the tank to fail frequently. Additionally, if the home is a rental property, it can make financial sense.

Real life example

For example, let’s take a 50 gal. GSW – G850T45N-PDV-ES2 30 tank which is available to buy at Rona for $940. Assuming a generous installation fee of $500, the total with tax comes to $1627.20.

Enercare rents this unit to customers for $40 per month ($480 per year) for its “useful life” – an average of 16 years and range of 10 to 20 years.

So total payments made during the agreement would amount to $4800 to $9600 – 4.5 to 9 times the cost of the tank and renting eclipses the cost of buying at about the 3 years and 5 months mark:

YearTotal cost of rentingTotal cost of buying
1$480$1627.20
2$960$1627.20
3$1440$1627.20
4$1920$1627.20
5$2400$1627.20
10$4800$1627.20
16$7680$1627.20
20$9600$1627.20

Renting vs buying out a hot water tank

If buying makes more sense than renting in your case, but you’re already stuck with an existing agreement:

Real life example

Continuing the example above, at around 2 years into the agreement, the buyout price of the now used and depreciated unit is $1,950 – more than twice the price of a brand new one.

 Assuming a new tank is $1,600, including installation and the rental cost per year is $480, buying out the unit becomes better than renting just after the 4 year mark. So if you think you can get more than 4 years out of the unit and intend to stay in the property for at least that long, proceeding with a buyout is the obvious choice.

YearsRenting – Annual CostRenting TotalBuyout Amortized CostBuyout Total
1$480$480$1,950.00$1,950.00
2$480$960$975.00$1,950.00
3$480$1,440$650.00$1,950.00
4$480$1,920$487.50$1,950.00
5$480$2,400$390.00$1,950.00
10$480$4,800$195.00$1,950.00
16$480$7,680$121.88$1,950.00
20$480$9,600$97.50$1,950.00

Now some might say: “but what about the service and ‘peace of mind’ you get by renting instead of buying?”

Service comparison

When renting, the rental company is responsible for any maintenance or replacement costs that arise since that’s part of the contract, while when you own a water heater you’re on the hook for any issues that arise after the warranty expires. 

Reliance lists the benefits of renting as the following: 

  • No up-front equipment costs – just one affordable monthly or quarterly payment*.
  • Lifetime service and repairs on ALL parts and labour (unlike the limited guarantee offered if you purchase equipment)*.
  • Live telephone support 24/7/365 at 1-866-RELIANCE (735-4262).
  • Guaranteed service from our large network of qualified, licensed technicians including emergency service that’s readily available.

It all sounds very similar to the points a sales representative will make to get you to buy an extended warranty – a form of insurance that is a great moneymaker for providers and a bad deal for the majority of their customers.

Like for extended warranties, there is a reason why they are so aggressive with their sales and retention tactics (see the industry’s timeline of Competition Bureau actions below) to convince you to sign up for a water heater, furnace or AC service contract: it is very profitable for them, not you.

How profitable?

Reliance Home Comfort boasts 1.7 million households across Canada – but their main service area is Ontario and a few major cities in Western Canada. It was sold for $2.82 billion to the Hong Kong billionaire Li family in 2017- or $1,658 per customer.

Enercare has 1.9 million customers in Canada and the US. They were acquired by an infrastructure management company for $4.3 billion in 2018 – or $2,263 per customer.

How likely is it to need repairs? 

A water heater tank warranty typically ranges from 6 to 12 years, and 1 to 5 for tankless. They can typically be expected to last 15 to 20 years and 10 to 15 years with little to no maintenance aside from draining it occasionally and replacing the anode.

That said, the more complicated the unit is, the more likely it is to need repairs. Direct venting is simpler than power venting which is simpler than tankless. According to Enercare’s annual report, the average rental life is 16 years. Ours is going on year 10 with no issues. 

What does the agreement cover? 

The rental companies will effectively run a hot water tank to death and do little to no maintenance on it until it fails and they will replace it and renew the agreement. The technician will probably say something like: “Nothing to be done. We can replace it for free”. (Translation: We will start you on a new 15 year contract).

You have to hassle them about getting a replacement contract and new tank before there is a preventable incident in your home.

The kicker? The rental company is not responsible or accountable for any damage caused by leaking tanks.

How reliable is the servicing company? 

They sell you on “peace of mind”, but what happens when you actually need them? There have been many reports that their service/customer support can be less than stellar (each word is a different link).

If you bought a house with a rental it’s now your contract, be sure to ask for it to be removed or paid off when making your offer to purchase if you do not want it. This is easier said than done in a hot real estate market.

How to cancel a water heater rental contract?

If you’ve recently signed up for a HWT rental, know that you can cancel the contract for any reason within 10 days of receiving a written copy of the agreement. 

If you are already stuck with one, there are 3 primary ways to cancel your rental contract, which depend on the company and year the agreement was made –

  1. Buying out and keeping the unit
  2. Paying the cancellation and return fees
  3. Terminating the agreement once the unit fails (has reached the end of its useful life) 

These options are buried in the fine print of the rental agreement, so many consumers are not aware of their options and feel trapped or feel like they’re being scammed.

To figure out which is the best available course of action, follow these steps and document everything closely so you have a record to refer to later if needed:

Check your home’s Agreement and Purchase of Sale

See if “hot water heater” is listed under Rental Items. Our purchase agreement included it:

This means that you have agreed to assume the contract notwithstanding that you never saw or signed it. The law more or less says that if you had had concerns, you could have made the Agreement conditional on reviewing the rental agreement.

If the water heater is not listed under rental items, the real estate agent made a mistake and you can demand that the seller buy out the contract.

Call and ask for a copy of the contract 

Say it is so you can see what your next steps are and know your rights and responsibilities. You want to see an original signed copy of the contract and the paperwork related to your unit & address, down to the serial number of the unit installed.

I called Reliance and after giving my name, phone number and address and asking for the agreement, they told me that there was no contract – simply month-to-month charges

In this case, you are not obligated to keep paying them as there is no legal commitment. I recommend not giving them any other personal information or allowing them to come to your home so it is not possible for them to “come up with” any documentation.

If they play hardball, here are some options according to Redditor TemporaryBoyfriend:

If they can’t produce it, then there’s no contract. Do your best to get them to put it in writing. 

If they can’t or won’t, write a letter describing your conversation as best as you can, stating that they’re unable or unwilling to provide the documentation of the contract, and that without that, as the new owner, there is no proof of an agreement, so you will not be paying any additional fees, and request the return of any funds you’ve paid since taking possession of the property.

Alternately, pay to have it replaced, remove the old one, and send a letter via certified mail, requesting that they come pick up their property or it will be disposed of at their expense. Let them put a lien on your property, and deal with it when you sell your home. Document everything well.

Ask when the unit was installed

They told me it was installed September 28, 2010 – so it’s been over 10 years.

Ask what your options are

They gave me 3 options:

  1. Drop the drained and disconnected tank off for free anytime between 9AM to 4PM at their depot in Kingston (about an hour away). All that is required is a Reliance bill showing our address. 
  2. Schedule an appointment for Reliance to come pick it up for $65+HST. 
  3. Schedule an appointment for Reliance to come drain, disconnect and take it away for $125+HST. 

To schedule, fill out the form on their website.

Get a reference number for the phone call

I didn’t even have to ask for this, but the representative gave me a reference number in case I needed to refer back to the call.

Buy a new hot water tank

Find a local plumber or HVAC company who will disconnect and remove the old one, deliver it to the rental company and install a new one.

You can also buy from Home Depot or Lowes and have the work through them, though they probably won’t take the old unit.

Buy out the existing unit

Depending on which company you’re with and when your unit was installed, you may have no choice but to buy out the rest of your contract. The price depends on the make and model of the unit and how many years it’s been in service. Example buyout schedules and prices can be found in the next section.

You can then run it until it dies – just make sure you have a floor drain or an unfinished basement in case it leaks. Then install a new one.

Tip: Even if you don’t decide to buy it out, some rental companies will offer you a retention offer of 3 to 6 months of free rental when you call to tell them you want to buy it out and get buyout details.

How to cancel a Reliance Home Comfort water heater contract?

For agreements started after November 5, 2014 and until November 5, 2024, the 2014 Competition Tribunal orders to Reliance Home Comfort applies, which state:

Termination

  • Reliance shall permit a Customer or its Agent to terminate a Rental Agreement at any time by submitting a Notification of Termination by telephone, facsimile, e-mail or webform.

Removal

Reliance shall permit a Customer or its Agent to:

  • drain, disconnect, remove and/or return to Reliance the water heater that is the subject of the Rental Agreement; or 
  • request that Reliance drain, disconnect, remove and/or pick up at the Installed Address the water heater that is the subject of the Rental Agreement

Fees

Other than any outstanding rental payments and interest charges owed, Reliance may not charge any Exit Charges other than a:

  1. Maximum termination charge of $200 (unit is less than 1 year old) and a maximum of $40 (unit is more than 1 year old and less than 10 years old).
  2. Maximum pick-up charge (not including draining or disconnection) of $65 in respect of a natural gas, a maximum of $125 for an electric.
  3. Maximum pick-up charge (including draining and disconnection) of $125.
  4. Any cost to repair damage to Reliance units only when the following two conditions are met: 
    1. the damaged unit is less than seven (7) years old; and 
    2. the damage was caused by a Person other than Reliance, the proof of any such damage being caused by a Person other than Reliance resting with Reliance. 
  5. Purchase price voluntarily agreed to by a Customer to purchase the unit outright. (optional)

Contract example

For installs made before November 5, 2014, the following agreement applies:

You will not be able to terminate this agreement until you have rented the water heater for at least a period of 84 months following the commencement of your rental agreement (the “Minimum Rental Term”), unless you buy the water heater from us in accordance with this agreement.

If the water heater has reached the end of its useful life and we are not installing a replacement, you shall at such time own the unit.

Example buyout schedule

I was not able to find a copy on their website, but I found a few examples online:

 

Age (Years)Buyout price
41800
53,726
51500
7700
7.52118
8895
9700
10545
10700
11329
11810
12600
141400
14210
15700
1625
1625
20100

How to cancel an Enercare water heater contract?

If yours was installed before September 15th, 2010, you can terminate your agreement at any time with no buyout. You have to return it to them (free) or they will disconnect and remove it for you for $75.

Since 2010, Enercare has used a “buyout only, useful life” (BOULC) contract. The only termination option for a BOULC prior to the end of the water heater’s “useful life” (determined solely by Enercare and averages 16 years – ie. failure) is to purchase the unit at a price schedule determined by Enercare when the contract is concluded.

Example buyout schedule

Source

Contract example

See: Terms & Conditions based on install date

How to make your water heater last longer

1. Change the anode rod

The first thing you can do to make your unit last longer is to replace the sacrificial anode rod every 3 to 5 or whenever it has been consumed more than 50%.

An anode rod is a metal stick that hangs from the top of the tank made of magnesium, aluminum or zinc which corrodes more easily than the metal the tank is made of – “sacrificing” itself to protect the tank from corrosion. They cost $15 to $30 depending on the length, thickness (which determines how long they last) and material type (magnesium is more effective and costly than aluminum, but therefore may not last as long).

Home Depot – Rheem Magnesium Anode Rod

Here is another tutorial:

2. Drain the tank until it runs clear

Once a year, or once every time you think of it while you’re in your utility room, open the drain at the bib at the bottom of the tank and let a water drain out until it runs clear and ideally empty it out completely. You want to drain and rinse the sediment off the bottom of the tank, and exercise your hose bib because they get seized up.

Over time, minerals and sediment in the water collects in the bottom of the tank and a layer builds up. This makes it harder for heat to transfer from the burner to the water through the tank bottom, leading to longer burner run times, a hotter tank bottom and increased risk of the tank splitting. It can also compromise its energy efficiency, lead to clogs in fixtures throughout the house as well as:

  • Less hot water available
  • Water isn’t as hot
  • Lower energy efficiency
  • Tank corrosion and eventually leaks or failure

Here is another tutorial:

Why do Ontario residents rent water heaters?

Since the 1950s, rental companies have provided home builders with subsidized water heaters which they would pre-install into new homes and the rental companies would receive a monthly rental fee from the homeowner in exchange. Initially, the purpose was to stimulate the adoption of natural gas, but over time became an aggressive, highly profitable, rent-collecting business model.

Home buyers are often surprised to find out they’re on the hook for a contract. During the final review and signing process of the big stack of legal agreements it is often not made clear what the terms and conditions of the agreement are. The only indication that an agreement even exists are the words “hot water heater” listed under the Rental Items section.

Buyers of new builds are also surprised as they assume that it is part of the home’s purchase price. When they try to get the builder to let them opt-out of the rental, they find that many builders have agreements with the rental companies and that including a rental unit in the home is non-negotiable.

Those who are aware don’t have the leverage to deal with it during the buying process in a sellers market (similar to how home inspections have fallen by the wayside).

Once the contract is in place, the cost of buying out the contract is made to be exorbitant and the process challenging – to the point where the rental companies and their predecessors have been investigated, fined and made to make commitments numerous times over the past 20+ years by the Competition Bureau.

This is compounded by the fact that Canadians move an average of 4.5 to 5.5 times in their life – or about once every 8 to 10 years – with many planning or uncertain about moving sooner than that, so buying it out doesn’t sound like as good of a deal.

Stuck with the rental from day one, most homeowners stick with it (since it is only $15 to $40 per month… for the rest of time). 

Timeline of Government actions against the industry

Since the early 2000s, the Bureau has taken significant enforcement action to address concerns relating to alleged anti-competitive conduct in this market, including filing applications and Registered Consent Agreements with the Competition Tribunal.

  • In 2002, the Competition Tribunal prohibited Enbridge Services (later known as Direct Energy) from engaging in practices that intentionally suppressed competition and restricted consumer choice in a 10-year consent order. The investigation found that Direct Energy re-engaged in similar conduct after the consent order expired in February 2012.
  • December 20, 2012 – Bureau determines that the companies had policies that intended to frustrate consumers, including:
    • a requirement to call to obtain authorization to return a rented tank;
    • aggressive retention tactics during these calls;
    • restrictions on when and where units can be returned; and
    • unwarranted fees and charges.
  • The Bureau continues to monitor this market and to analyze the numerous complaints it receives from consumers and businesses. In three of the past four years, various rental water heater companies have generated the most complaints concerning abuse of dominance received by the Bureau.
  • November 6, 2014 – Enercare acquires Direct Energy’s water heater portfolio and the Competition Bureau gets Enercare and Reliance (also fined $5 million) to commit to:
    • Not requiring customers to obtain an authorization number before returning their unit
    • Allowing a new supplier to terminate a customer’s account on their behalf
    • Not unreasonably restricting where and when a unit can be returned
    • Not charging unwarranted fees to switch providers or terminate contracts
    • Opening new return depots
  • November 24, 2014 – Bureau makes National Home Services (acquired by Reliance on same day) pay $7 million for misleading door-to-door sales
  • April 1, 2015 – Ontario bans door-to-door sales of water heaters
  • October 30, 2015 – Direct Energy pays $1 million penalty for restricting competition and limiting consumer choice
  • The Bureau launched this latest investigation in 2017, following the receipt of numerous customer complaints about Enercare’s water heater return policies, contracting practices, and alleged breaches of the 2014 commitments.
  • September 19, 2019 – The Bureau announced that it has discontinued its investigation launched in 2017 into whether Enercare Inc. violated the abuse of dominance provisions of the Competition Act due to “insufficient evidence” However, information gathered in the course of the inquiry indicated that the high required buyout prices, and the duration for which they were required, went substantially beyond the recovery of Enercare’s initial investment. It found that in 2018, Enercare had:
    • A market share of approximately 80% in a relevant market that includes rental gas-powered water heaters in the Enbridge Gas Territory. 
    • The ability to impose consistent price increases above the rate of inflation.
    • High internal rates of return 

Sources

Submit a complaint

If you feel that your rental company has taken part in deceptive marketing practices or abuse of dominant position, you can submit a complaint to the Bureau here or leave a review of Reliance or Enercare here on Cansumer.

Over to you

We’re interested to know – do you rent or own your water heater? How much did/does it cost? How old is it and has it ever required any maintenance? Let us know by leaving a comment below!

About the author

Alex Wideman

Founder of Cansumer. Consumer rights advocate, serial entrepreneur and educator. Read more

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