The worse scenario is the heater could have malfunctioned over heated the water and ruptured. 

Tenant agrees to allow Landlord timely access to premises to do maintenance and repair.Tenant will notify Landlord in a timely manner of any damages or problems as they arise, including damages caused by Tenant, malfunction of appliances or fixtures, and water/moisture leaks and spots.Tenant will take care of the premises, keeping them clean and clear of debris.

This could be the result of undersized supply wiring or malfunctioning components in the furnace.

Here is an example from our property rules:APPLIANCES.Appliances included in the rental of the premises, as noted in the rental agreement, such as a refrigerator, range, dishwasher, clothes washer or clothes dryer, belong to Landlord.If Tenant wishes to use these appliances, Tenant agrees to use them properly in accordance with manufacturer instructions and assumes all responsibility for their care and cleaning.In the event there is a malfunction of an appliance or an appliance is in need of repair, Tenant agrees to notify Landlord in a timely manner and in writing.If Tenant wishes to use their own appliances, Tenant agrees to contact Landlord in advance to obtain prior written approval and instructions, as the removal and installation of appliances must be done with care to prevent damage to the appliance and/or building.Relying on text messages for official communications is not a good way to go.

When it gets old, malfunctions, then you're in with a world plumbing issues.

Other related expenses for water leaks or electric component malfunctions should be minimized due new motors, controllers, wiring, and all new pvc water/sewer piping.

I would normally use 10, 15, 10, 10 as a minimum unless there were unique factors (like newly renovated/constructed), and go up from there. 5% of 550/mo is only $330/year/unit - that could get swallowed up in a single service call for a malfunctioning furnace.

Lawyer alleges malfunction has to occur for it to be legit, but I had a broken septic pipe previously that was revealed during routine maintenance even though the septic was still functioning ok so he is just wrong about that.

(My find)Smoke detector malfunctioning in the middle of the night- triggering others.

In the event there is a malfunction of an appliance or an appliance is in need of repair, Tenant agrees to notify Landlord in a timely manner and in writing.