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Home >News >India >How rental bonds can help to end trust deficit between landlords and tenants

The number of residential units lying vacant in India is huge. The reasons vary from limited policy related to rental housing, existing legislations unfriendly to landlords, low rental yield, and mainly trust issues between landlord and tenant over regular payment of rent, security deposit.

Rental bonds can help address the issue of lack of trust between landlords and tenants. It can help promote rental housing in India. The bonds address the concern of both the parties at a nominal cost, eliminates the need for payment of bulky security deposit.

What is a rental bond?

A rental bond is a guarantee in favour of the landlord that the tenant will fulfil his obligations under the tenancy agreement. It is issued by a guarantee company on behalf of the tenant, favouring the landlord protecting him from loss up to the limit of the guarantee in the event of default by the tenant

In an interview with Livemint Pankaj Bhansali, COO, Eqaro Guarantees talked about the features of rental bonds and how these bonds will address the issue of a high number of vacant residential units:

What are the features of rental bonds?

It acts as a replacement of the cash security deposit and covers default in payment of rent, utility bills, unpaid rent over the balance of the lock-in period and any damages to the property over fair wear & tear. The tenant has to pay just a nominal fee which is a small percentage of the actual amount of the bond.

How rental bonds will address the issue of a high number of vacant residential units?

Rental Bonds provides the landlords with credit-verified and assessed tenants backed by an institutional guarantee and hence can help address the issue of lack of trust between landlords and tenants. The bond addresses the concerns of both parties at a nominal cost and eliminates the need for payment of bulky security deposits. There is a robust process of verifying the tenants before issuing a bond on their behalf. Rental bond has the potential to further institutionalize the renting business in India thereby reducing the high number of vacant residential units across major cities.

Model Tenancy Act

Earlier this month, the Union Cabinet approved the Model Tenancy Act (MTA), which is aimed at overhauling and growing the legal framework for home enting. According to an official statement, the act will help overhaul the legal framework with respect to rental housing across the country and the move will boost real estate growth.

"The Model Tenancy Act aims at creating a vibrant, sustainable and inclusive rental housing market in the country. It will enable the creation of adequate rental housing stock for all the income groups thereby addressing the issue of homelessness," the government said.

The act will also enable the institutionalisation of rental housing by gradually shifting it towards the formal market.

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