Rental Water Heaters and HVAC Contracts: What Sellers Must Resolve Before Closing in Ontario

It's common in Ontario for a water heater, furnace, or air conditioner to be rented rather than owned by the homeowner. Many sellers don't think much about this until their lawyer flags it during the closing process — often because the rental company has registered a notice of its interest, and that registration has to be dealt with before the buyer can take clear title.

If you're selling a home with a rented water heater or HVAC equipment, here's what typically needs to happen, and why it's not something to leave until the last minute.

Why a Rental Contract Becomes a Closing Issue

When a homeowner rents equipment like a water heater, furnace, or air conditioner instead of buying it outright, the rental company retains ownership of the unit. To protect that ownership interest, many rental companies register a notice — sometimes a notice of lease, sometimes a registration under the Personal Property Security Act (PPSA) — against the property or the equipment.

This registration is exactly the kind of encumbrance a buyer's lawyer looks for during a title search: it signals that something on or in the home isn't actually the seller's to unconditionally convey. Left unresolved, it can affect the buyer's ability to take clear, marketable title at closing.

Step 1: Identify Every Rented Item in the Home

Before you can resolve anything, you need a complete list. Common rented equipment includes:

• Hot water heaters (a longstanding common example in Ontario)
• Furnaces
• Air conditioners
• Water softeners or treatment systems
• In some cases, security systems tied to a monitoring contract

Check your utility bills, bank statements, or old paperwork for recurring rental charges if you're not sure what's owned versus rented.

Step 2: Contact Each Rental Company for a Payout Figure

Once you know what's rented, contact each company directly to find out what it would cost to buy out the remaining contract, or what's required to transfer it. These figures and terms vary by company and contract — there's no standard number to expect, so get current figures directly rather than estimating.

Step 3: Choose How to Handle Each Contract

Sellers generally have a few options for each rented item:

• Buy out the contract before closing, so you own the equipment and any registered notice can be discharged.
• Transfer the rental contract to the buyer, if the rental company allows this and the buyer is willing to take it on. This usually needs the buyer's consent (often addressed directly in the Agreement of Purchase and Sale) and the rental company's approval.
• Have the equipment removed and replaced with owned equipment, if neither buyout nor transfer suits the timeline.

Step 4: Get the Registered Notice Discharged

If a notice of lease or PPSA registration exists, resolving the underlying rental contract is only half the job — you also need the rental company to formally discharge its registration. This is generally something your real estate lawyer coordinates and confirms is completed before or at closing.

Step 5: Reflect the Arrangement in the Agreement of Purchase and Sale

Whether the buyer is taking over a rental contract or you're delivering the equipment owned outright, this should be spelled out clearly in the Agreement of Purchase and Sale — including which party is responsible for any buyout cost. Leaving it ambiguous is a common source of disputes near closing.

Why Buyers Care About This Too

From a buyer's perspective, taking over a rental contract means taking on an ongoing monthly obligation and (if applicable) a company that has a registered interest in equipment inside the home they're buying. Buyers and their lawyers will typically want:

• Confirmation of exactly what's rented versus owned
• The current rental payment amount and remaining contract term
• Confirmation of whether the rental company will allow the contract to transfer
• If the seller is buying out the contract instead, confirmation that the discharge will be registered

A buyer who discovers a rental contract they didn't know about — after closing — is a common source of post-closing friction, even when no one acted in bad faith. Clear disclosure and paperwork ahead of time avoids this.

A Seller's Pre-Listing Checklist

• [ ] List every rented appliance or system in the home
• [ ] Contact each rental company for current contract terms and payout figures
• [ ] Decide, per item, whether to buy out, transfer, or replace
• [ ] Confirm whether any notice or PPSA registration exists against the property or equipment
• [ ] Build discharge and buyout timelines into your closing schedule
• [ ] Make sure the Agreement of Purchase and Sale clearly states what's included, what's rented, and who is responsible for resolving it

Frequently asked questions