How rental bonds can help end the trust gap between landlords and tenants
The number of vacant residential units in India is huge. The reasons vary from a limited policy related to rental housing, existing laws not favorable to landlords, low rental yield and mainly problems of trust between landlord and tenant on regular payment of rent, security deposit.
Rental bonds can help solve the problem of lack of trust between landlords and tenants. It can help promote rental housing in India. The bonds meet the concerns of both parties at minimal cost, eliminate the need for payment of a large security deposit.
What is a rental bond?
A rental bond is a guarantee in favor of the landlord that the tenant will fulfill his obligations under the rental agreement. It is issued by a surety company in the name of the tenant, for the benefit of the lessor protecting him from losses up to the limit of the surety in the event of default by the tenant.
In an interview with Livemint Pankaj Bhansali, COO, Eqaro Guarantees spoke about the characteristics of rental bonds and how these bonds will solve the problem of a high number of vacant residential units:
What are the characteristics of rental obligations?
It replaces the cash security deposit and covers failure to pay rent, utility bills, unpaid rent over the remainder of the foreclosure period, and any damage to the property from normal wear and tear. The tenant only has to pay a small fee which is a small percentage of the actual deposit amount.
How will rental obligations solve the problem of the high number of vacant units?
Rental bonds provide landlords with tenants with verified and assessed credit, backed by an institutional guarantee and therefore can help address the issue of lack of trust between landlords and tenants. The surety bond addresses concerns for both parties at minimal cost and eliminates the need to pay large security deposits. There is a rigorous process for verifying tenants before issuing a bond on their behalf. Rental bonds have the potential to further institutionalize rental activity in India, thereby reducing the high number of vacant residential units in major cities.
Model Rental Law
Earlier this month, the Union’s Cabinet approved the Model Tenancy Act (MTA), which aims to overhaul and expand the legal framework for home entry. According to an official statement, the law will help overhaul the legal framework for rental housing across the country and the move will boost real estate growth.
“The Model Tenancy Act aims to create a vibrant, sustainable and inclusive rental housing market in the country. It will allow the creation of an adequate rental housing stock for all income groups, thereby addressing the problem of homelessness, ”the government said.
The law will also allow the institutionalization of rental housing by gradually moving it to the formal market.
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