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He is probably right about the water not being responsibility of the landlord but he is wrong in the sense that a water heater is normally not considered an "appliance" ( it part of the real estate under both real estate law and IRS law). I assume the landlord paid for the repair of the water heater (unless you as the tenant were responsible for the rupture) The tenant, however, must also act with diligence. This translates into both a duty to mitigate the damage and to act responsibly to notify someone to alleviate the damaging condition. If it is worth it to you to file a suit regarding this issue (it might sour your relationship with your landlord) you could have a leg to stand on as long as the broken water heater was not your direct responsibility and you could bring suit in small claims court. Water is your responsibility but negligence relating to the water heater that was not your responsibility. If you gave proper notice and sufficiently mitigated the problem (turning off the water main ASAP) then you would have a good chance to prevail in this case since the landlord did not sufficiently maintain the water heater.
See link for CA website on landlord repairs: http://www.dca.ca.gov/publications/landlordbook/repairs.shtml
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A letter (certified with return receipt) is usually best as that documents the conversation just in case you need it in the future. You should simply point out that a water heater is not considered an appliance and it is considered part of the real estate. Also you could point out that it was landlord's responsibility to fix it and that you gave reasonable notice of the defect. You could state that the water bill was increased because of the damage that he was responsible for and that you would expect that he pay for those damages as they are not your responsibility. Also understand that my advice is for informational purposes only and does not establish an attorney client relationship. This suit is to inform and this information is for that purpose only.
There is a good chance you would prevail although Judges have very wide discretion. If the water heater was his responsibility and you reported it promptly and did everything you could to limit damages, it is very likely the landlord would be responsible because of his own negligence as it is for the water heater.
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