I used to own 15 apartment condos in town. If the building is covered under a condo agreement, they absolutely CAN tell you what you can and can't have in your apartment (no fish, no pets, no guns, no drugs, etc etc etc). If it's just strictly a rental suite I think you can argue that they are 'pets', however they are not telling you to get rid of pets, they are telling you to size down the tank, which I'm sure they can justify with water/structure/safety issues.
One of my apartments did have a faulty regulator on the water heater go... and yes I flooded 2 lower apartments. "Reliance home comfort" had installed the regulator, and had installed no pan under the water heater. Long story short I ended up pulling all the rental water heaters out of those units and replacing them with owned.
I also flooded 14 apartments under one of mine because a water feed line burst that was going into a costco toilet. That was a nightmare, I had people threatening my tenants, threatening me, and 2 lawsuits I ultimately had to fight (and won). Floods are not fun.
That said, I'm not a lawyer, and as a landlord I rarely got a fair shake, so I can tell you, if you're really upset, call the tenant tribunal. They HATE landlords and will literally do almost anything to eff one over in favour of a tenant. If there's a way to keep your tank, they're going to be the ones to tell you.
https://www.pas.gov.on.ca/Home/Agency/451
Also, the moral of this story is: If you have anything rented through "Reliance home comfort", get rid of it and buy your own. Nobody in the whole damn world rents their water heaters except us, we're some stupid idiots that think it's normal because reliance scares you to thinking your place will be wrecked if you don't have them taking care of you. What they really are doing is charging you constant rent on something that ultimately will fail catastrophically (ask your reliance guy how often they change the anode rods in the tanks). Those rods have to be changed out (or at least checked) every 3-5 years. The rod attracts the corrosion, keeps it from eating your tank (they used to be glass, but that's another story), if the rods are corroded away you have nothing to keep the bottom from rotting out of your tank, and that's how a great many fail. Just remember EFF RELIANCE.