When buying a home in Toronto (or anywhere in Ontario), an unpleasant surprise can be discovering “hidden” rental items that come with the property. These are fixtures or appliances in the home that the seller doesn’t actually own – instead, they are under a rental or lease contract with a third-party company.
The most common example in Canadian homes is a rented hot water heater, but there are others as well. If such rental agreements weren’t clearly disclosed in your Agreement of Purchase and Sale (APS) at closing, you could be on the hook for ongoing fees or buyout costs you didn’t budget for. This article explains how to identify and handle hidden rental items in a home purchase, especially under Ontario’s rules, and how to protect yourself from these unexpected obligations.
Common Rental Items to Watch Out For
In Ontario, the standard APS form includes sections to list included and excluded items, as well as a section to specify any rental items or contracts to be assumed by the buyer. The classic rental item is the hot water tank, but there are many others.
Home sellers in the Greater Toronto Area and beyond might be renting major equipment such as the furnace, central air conditioner, or a tankless water heater. It’s also possible to encounter rental or financing contracts for things like water softeners, alarm/security systems, or even big-ticket upgrades (for example, windows, doors, or roof shingles that were replaced and financed on a payment plan).
Any such item that the seller doesn’t fully own needs to be clearly identified in the sale agreement, because the contract will dictate who is responsible for it after closing. If it’s not properly disclosed, it effectively becomes a “hidden” rental item.
Why do sellers rent these items? Renting appliances or equipment instead of buying them outright is fairly common in Ontario. For instance, many homeowners opt for a monthly rental plan on a water heater or HVAC system because it spreads out the cost and often includes maintenance or repair services. Builders of new homes might also strike deals with rental companies – it’s not unusual for a brand-new house in Ontario to come with a rented furnace, AC, or water heater as part of the purchase contract. Over time, though, these rental contracts can become expensive and cumbersome.
Some are long-term leases (10+ year terms) with hefty cancellation fees that far exceed the actual value of the equipment. In fact, many of these arrangements function more like a high-interest financing plan than a true month-to-month rental. This is why hidden rental items are a big deal – they represent ongoing financial obligations that you inherit with the house, often with costly terms if you ever want to get out of the contract.
Why Hidden Rentals Can Be Costly Surprises
Discovering an undisclosed rental contract after you’ve bought the home can hit your wallet hard. First, there’s the monthly rental fee itself – typically ranging from around $20 to $50 for a water heater, and potentially more for HVAC systems. While that may not sound huge, it adds up over time, especially if you weren’t expecting it. But the bigger shock often comes if you decide you don’t want to continue renting and look into ending the contract.
Many rental agreements in Ontario come with lengthy terms and steep buyout or cancellation penalties. The buyout cost to purchase the unit outright can be thousands of dollars (commonly $1,000 – $5,000 if the unit is fairly new). These fees often far surpass the price of installing a brand new equivalent appliance yourself, because the rental company is recouping not just the equipment cost but also their financing profit.
For example, one Ontario homeowner was “shocked” to learn they’d have to pay $10,000+ to buy out a rented air conditioner contract – for a unit worth only about $2,500 – because a security interest lien was registered on the property title for that contract. Cases like this aren’t rare; equipment rental firms have been known to register liens (officially called Notices of Security Interest) on home titles without owners fully realizing, and those liens must be paid off at sale or refinance. In practice, this means if a rental or lease wasn’t dealt with before closing, the new homeowner might get stuck with a bill for clearing the lien or continuing the contract.
Aside from the financial hit, hidden rentals cause hassle and stress. Imagine moving into your new house only to receive a notice that you need to pay $X every month for the water heater rental – or worse, that you owe a lump sum to cover a contract you never knew existed. If it wasn’t in your budget, this can affect your finances post-closing.
Moreover, if you ignore the rental, the service provider could take action (since the equipment is legally theirs until paid off). They might send collections after the person who signed the contract (often the previous owner, or you if you assumed it by contract) or even come to retrieve the unit. It’s a mess you’d much prefer to avoid. In some instances, sellers or their agents truly didn’t realize the importance of disclosing these contracts, but in others a less scrupulous seller might hope the buyer just takes it on unknowingly. Either way, Ontario law requires clarity on this point – and as a buyer, you have rights if something was hidden.
Disclosure Requirements and Your Rights in Ontario
The good news: Ontario real estate contracts have built-in mechanisms to handle rental items – if everyone uses them properly. Sellers must disclose any rental contracts tied to the property in the Agreement of Purchase and Sale.
In the standard OREA (Ontario Real Estate Association) APS form, there’s a clause (often pre-printed) that lists Rental Items and usually reads along the lines of: “The following equipment is rented and not included in the purchase price. The Buyer agrees to assume the rental: ______.”
This is where any rented water heater, HVAC, alarm contract, etc., should be listed. If the APS clearly states, for example, that “Hot water tank is a rental to be assumed by buyer”, then as the buyer you are on notice and have agreed to take over that obligation. In such cases, you’re contractually bound to assume the rental and the monthly fees once you take possession of the home. (Of course, you could still later choose to buy out or cancel it, but you can’t say you weren’t aware.)
But what if a rental item wasn’t disclosed?
If a piece of equipment was rented and the seller failed to list it in the contract, the law is generally on the buyer’s side. You did not explicitly agree to assume that contract. In fact, there have been court cases supporting buyers in this scenario.
For example, in one Ontario case a seller had an alarm system with a monitoring contract but only listed the alarm equipment as included, with no mention of the monitoring contract under rental items.
After closing, the buyer refused to take on the $45/month monitoring fees (she thought she was just getting the equipment, not an ongoing contract). The seller sued, but the judge dismissed the claim – ruling that the alarm’s contract should have been listed as a rental item in the APS, and since it wasn’t, the buyer was not responsible for it. This illustrates that if it’s not in the contract, the buyer generally cannot be forced to assume the payments.
Practically, if you discover a hidden rental after closing, check your APS documents immediately. Ensure that nowhere in your agreement did you agree to assume that particular rental contract. If it truly wasn’t disclosed, you have grounds to challenge it. Often, the first step is to contact your real estate lawyer. They can advise on how to proceed – for instance, writing a letter to the seller (or the seller’s lawyer) demanding that the seller cover the cost of buying out the contract or otherwise resolve the issue, since the seller breached the disclosure obligation.
In many cases, a seller who failed to disclose a rental will be responsible for buying it out or compensating you, because delivering the property without encumbrances was implied. If they refuse, you might have to pursue legal action (e.g. small claims court) for the damages. Fortunately, such scenarios can often be avoided or settled once the oversight is made clear, especially if the amounts are not huge.
It’s worth noting that most real estate lawyers conduct a title search before closing, which often reveals if there’s a lien (notice of security interest) on title for a rental contract. If a lien is found and that rental wasn’t agreed upon, the seller’s lawyer will typically be pressed to deal with it before closing – usually by having the seller pay it off and discharge the lien. This is one reason these issues often come to light before closing. However, smaller rental contracts without registered liens (like the alarm monitoring example) or simple oversights can slip through, so it’s not impossible to only learn about it after you move in.
What to Do If You Find a Hidden Rental Item After Purchase
Let’s say you’re now living in the home and you get a bill (or a technician knocks on the door) for a rental you weren’t aware of. Don’t panic – follow these steps:
Review your APS and any seller-provided disclosure statements. Make sure the item wasn’t mentioned. If it was listed and you missed it, then you did agree to it – in which case, skip to the next section on handling the contract. If it truly wasn’t disclosed, proceed to step 2.
Inform your real estate lawyer immediately about the situation. Provide them with the details (e.g. “I just found out the water softener is a rental with Company X at $30/month, but our contract doesn’t mention this”). Your lawyer can formally notify the seller’s side. In an ideal scenario, the seller may agree to cover the buyout or take back the contract if it was an honest mistake. After all, the seller legally should have disclosed this and their failure to do so could make them liable for the costs you incur. A cooperative seller might pay the rental company to terminate the contract, or refund you a lump sum equivalent to the buyout fee.
It’s usually wise to have your lawyer involved before you call the rental provider directly. But you do want information – such as contract terms, remaining duration, monthly fee, buyout amount, and transfer procedure. If you or your lawyer contacts the company, make it clear you are the new homeowner who just discovered this. Do not sign or agree to anything yet. You’re gathering facts. If the seller is taking responsibility, you might not need to personally assume anything.
Continue using the equipment normally but avoid any drastic actions. Don’t uninstall or replace the rental item on your own (more on why not below). If bills are coming due and it’s unclear who’s paying, your lawyer might advise you to pay under protest or the seller might cover them temporarily until sorted out. The key is to document everything.
In the best case, the seller pays off the contract or the rental company agrees to let you out if it was a misunderstanding. If not, you might have to pursue a legal claim for the cost. Luckily, for something like a water heater or minor appliance contract, this would likely fall under small claims court if it came to that, since the amounts are usually a few thousand dollars or less. Demonstrating that it was not disclosed in the APS often makes for a strong case in your favor.
Throughout this process, keep records – copies of the contract (if you obtain it), correspondence with the seller, etc. And remember, you’re not the first to face this issue; Ontario’s consumer protection ethos (and case law precedents) generally aim to prevent buyers from being blindsided by such costs.
If, on the other hand, the rental was disclosed in your purchase agreement (or you knowingly agreed to assume it), then it’s not really “hidden” – it’s an inherited responsibility. In that scenario, your task is to decide how you want to deal with that rental going forward. We’ll cover your options next.
Options for Handling a Rental Equipment Contract
So you’ve bought a house and it comes with a rental contract – either by disclosure or because you’ve decided to resolve an undisclosed one by keeping it. What can you do with it? Broadly, you have a few options:
The simplest route is to just carry on with the status quo. If the rental fee is manageable and the service (maintenance, repairs, etc.) is valuable to you, you might choose to keep renting the equipment. Make sure the contract is properly transferred into your name with the provider so that you receive the bills and service calls going forward.
Generally, when a property with rental equipment changes hands, the rental company requires the new owner to assume the contract formally – sometimes this means signing a transfer document or a new contract in your name. Keep an eye on the monthly charges (they can increase over time) and note the contract expiry if any. Pros of continuing the rental: no large upfront cost, and you usually get free repairs or replacements as part of the rental service. Cons: you may pay more in the long run, and you remain subject to the provider’s terms.
Many rental agreements allow the homeowner to buy the equipment outright at any time, effectively terminating the rental. The catch is the buyout price. If the equipment is relatively new (e.g. a 2-year-old furnace or water heater), the buyout can be very steep – often well above $1,000 and even $5,000 in some cases. That’s because the rental company planned to make money over the full term, and they want to recoup it. However, if the unit is older or near the end of its contract term, the buyout number might be more reasonable.
Some contracts even stipulate that after X years of payments, the equipment transfers to the homeowner for a nominal fee – essentially an automatic buyout after, say, 10 years. Ask the provider for a buyout quote. Then consider the age and condition of the unit: is it worth paying that amount, or could you buy a brand-new unit for similar cost?
For example, if the rental water heater’s buyout is $800 and a new similar heater costs $1,000, you might lean toward paying it off for peace of mind (especially if it’s only a couple years old). Conversely, if the buyout is $3,000 and the unit is mid-life, you might just continue renting a bit longer or explore other options. Sometimes, you can negotiate the buyout down – it never hurts to ask. Rental companies have been known to offer a discount if you indicate you’re serious about buying it out.
This option involves essentially giving the equipment back to the rental company and ending the contract (without buying it). It’s important to do this by the book – you usually can’t just uninstall the furnace or heater and send it off on your own. Typically, you must provide formal notice of cancellation to the company and schedule an equipment pickup or return.
Be aware of a few things: Many providers charge a removal fee or administrative fee when you cancel and they come get their unit. In some cases, if you’re required to bring the equipment to a depot yourself, that can be a huge hassle (imagine hauling a heavy water tank in your car). Also, you’ll need to have a replacement ready – e.g. if you’re returning a rented water heater, you’ll want to have a new water heater installed (perhaps by a different company or purchased outright) immediately, so you’re not without hot water.
The advantage of cancelling is that you free yourself from that contract and its future payments. The disadvantage is the upfront cost and effort: you have to possibly pay a fee, and definitely pay for a new unit and installation. Always confirm with the rental provider what the exact steps are to cancel and any charges involved, so you can make an informed decision.
What you shouldn’t do is ignore the contract or try to unilaterally dispose of the equipment. Remember, until you buy it out or properly terminate the agreement, the appliance does not legally belong to you – it belongs to the rental company. If you simply rip out a rented water heater and put it on the curb, the provider could treat this as a breach.
They may charge you the full value or buyout cost as damages, refuse to cancel the ongoing contract (since you didn’t return their property), and even send a collections agency after you for the missing unit. Similarly, if you stop paying the rental bills without returning the unit, they can pursue collection or put a lien on your home. It’s not a path you want to go down. Always follow the proper process to resolve the contract – either assume it, buy it, or cancel it formally.
If the contract terms feel grossly unfair or predatory, you aren’t out of options. Especially in cases where homeowners felt misled (say, by door-to-door sales tactics), there have been avenues for relief. One approach is to negotiate with the rental provider for a better exit deal. Some companies may reduce the buyout amount if you explain the hardship or if they fear you might litigate. Another route is involving consumer protection authorities.
The Competition Bureau of Canada has looked into certain water heater rental companies over anti-competitive or misleading practices in the past. If you believe you were misled into assuming a contract, filing a complaint with the Competition Bureau or Ontario’s consumer protection agencies might put pressure on the company (though it’s not a quick fix). And of course, legal consultation is wise if you suspect any fraud or illegality with how the contract was presented.
In most scenarios, one of the first three options (keep renting, buy it out, or cancel properly) will solve the issue. Which option makes the most sense depends on your financial situation, the specific numbers involved, and how long you plan to stay in the home. For instance, if you only plan to live there a couple of years, maybe continuing the rental is easiest (and the next buyer can assume it). If this is your “forever home,” you might prefer to eliminate the monthly fee and own your equipment outright sooner rather than later.
Tips to Avoid Hidden Rental Costs in Home Purchases
The ideal scenario is to never be caught off guard by rental items. Both buyers and sellers can take steps to ensure these contracts are handled transparently. Here are some best practices to keep in mind:
- Ask Early and Explicitly:
As a buyer, the moment you’re serious about a property, ask the seller or listing agent: “Are there any rented equipment or contracted items with this home?” Cover the usual suspects: water heater, furnace, AC, water softener, propane tank (if rural), alarm system, etc. A professional realtor should be checking this, but it never hurts to double-check yourself. Don’t forget to ask about any recent installations or upgrades – if the seller recently got new windows or a new furnace, inquire if those are fully paid for or financed via a contract.
- Check the APS and Get It in Writing:
Scrutinize the Agreement of Purchase and Sale before signing. The APS should clearly list any rental items to be assumed. If an item is listed as rental and you agree to assume it, make sure you also get a copy of the rental contract or at least key details before finalizing the deal. You need to know what you’re getting into (monthly cost, remaining term, buyout, etc.). If the seller can’t produce the contract, that’s a red flag – insist that they obtain one from the provider or provide written confirmation of the terms.
If something is not listed in the APS as a rental, you as buyer should not assume it. Likewise, if you don’t want to take over a particular rental, you can stipulate in your offer that it be bought out by the seller on or before closing (or simply refuse to assume it). Never rely on verbal assurances; if the seller says “Oh yeah, the furnace is rented but we’ll take care of it,” then the APS needs to reflect that (e.g. a clause that seller will discharge the furnace lease by closing). Written agreements are what count.
- Do a Title Search / UCC Search:
This is usually the job of the buyer’s lawyer, but it’s good to be aware. In Ontario, many rental or lease contracts for HVAC equipment are registered on title as a security interest. Your lawyer’s title search before closing will typically find these. If one pops up that you weren’t aware of, it must be resolved before closing – often by the seller paying it off. For additional thoroughness, some lawyers or buyers agents will do a PPSA search (Personal Property Security Act registry) for the seller’s name to catch any liens on personal property (like leased equipment). While you don’t have to do this yourself, knowing that these searches exist can give you peace of mind that hidden liens will be caught.
- Negotiation Leverage:
If during your conditional period (say you have a home inspection or lawyer’s review condition) you discover a rental contract you’re uneasy about, you have a chance to negotiate. You could ask the seller to reduce the price or cover the buyout fee as part of the deal. For example, if the home has a rented water heater with a $1,200 buyout, you might ask the seller for a $1,200 credit on closing so you can buy it out immediately. In a hot market, sellers might be less willing to concede, but it’s worth a shot, especially if the rental is a long-term costly one. Otherwise, you factor the rental into your offer price (mentally treat it as an added cost of the house).
- Sellers: Do the Right Thing:
If you’re the seller, be upfront about any rental or lease obligations on your property. It’s better to disclose and deal with it than to have it derail your sale or lead to a lawsuit after. Gather your contracts and recent bills so you can provide accurate information. Consider buying out small rentals yourself to make the property more attractive (some buyers balk at rentals). And if you have a large contract (like a 10-year HVAC lease), be prepared that buyers or their lawyers might demand you settle it. Also, ensure your agent lists the rental items clearly on MLS and in the APS. Honesty and transparency will save everyone headaches.
By following these practices, you can largely avoid the “hidden rental” problem. Diligence and clear communication during the home purchase process go a long way. Always remember: if something in a deal is important to you, get it in writing in the contract. Rental agreements are no exception.
TL:DR
Hidden rental items in a home purchase can be a nasty surprise, but they are manageable with knowledge and the right approach. In Toronto and across Canada, the key is due diligence – both before you buy and after you take possession. Always read your contracts carefully and don’t hesitate to ask questions about anything that might be rented or financed. If you do end up with an unexpected rental, know that you have options and rights: from legal remedies for non-disclosure to various strategies for taking over or terminating the contract.
Finally, consider consulting a real estate lawyer for any uncertainties. Professionals who deal with home purchases regularly (like real estate lawyers and experienced realtors) have seen these scenarios and can advise you on the best course of action. At the end of the day, buying a home should be a joyful milestone – and with a bit of foresight, you can ensure that hidden rental obligations don’t put a damper on your new home experience. Here’s to transparent deals and no surprises on your next home purchase!