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Home >Money >Personal Finance >Rental bonds are a great idea, but will they work?

If you are planning to take a house on rent, especially in cities such as Bengaluru, you may have to arrange for a security deposit of up to 10 months’ rent. So, suppose the rent is 20,000 per month, you will have to shell out around 2 lakh as deposit. Landlords take the security deposits to pay for any damage caused by the tenant. This deposit is refunded when the tenant vacates the house.

Not everybody may have the financial capacity to pay such security deposits. Things are likely to improve after the Model Tenancy Act is implemented by states as it caps the security deposits to two months, but some may even find it difficult to arrange for two months’ deposit, especially in case of financial stress.

To provide an alternative to the problem of high security deposits, a company called Eqaro Guarantees has come out with a unique solution called rental bonds. Eqaro Guarantees is a company that provides guarantee to the landlord on behalf of tenants against unpaid rent, damage to the property, breach of notice period, etc. The guarantee is issued in the form of rental bonds. The bond is basically a tripartite agreement between Eqaro Guarantee, the landlord and the tenant.

“Rental bonds are a win-win for both the landlord and the tenant, as the latter doesn’t have to pay a high amount of security deposit while the landlord gets a verified tenant," said Pankaj Bhansali, chief operating officer and chief business officer of Eqaro Guarantees.

“We do the underwriting of financials of the tenant on parameters similar to what a bank does when it lends to a borrower," added Bhansali.

Eqaro charges 6% of the security deposit on the tenant as a commission to issue the bond. The tenant can deposit the sum in a bank fixed deposit and earn returns. Nothing is charged to the landlord.

Experts feel rental bonds are a good solution, but doubt whether landlords will accept these in place of cash. “Rental bonds are akin to a bank guarantee. Here, instead of a bank, the company is giving the guarantee to repay the landlord in case of default of payment by the tenant," said Harsh Parikh, partner, Khaitan & Co.

However, the success of the rental bonds will depend on the repaying capacity of the guarantor in case of default.

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