A rental bond is a guarantee given by the tenant to the landlord that he will fulfill his obligations under the tenancy agreement.
In India, there are a large number of vacant residential units. The reasons range from a lack of rental housing policy to existing legislation that is unfriendly to landlords, a low rental yield, and, most importantly, trust issues between landlord and tenant regarding regular payment of rent and security deposit.
Rental bonds can help to address the issue of landlord-tenant distrust. It can aid in the promotion of rental housing in India. The bonds address both parties’ concerns at a low cost and eliminate the need for a large security deposit.
What is a rental bond?
In a tenancy agreement, a rental bond is a guarantee that the tenant will fulfill his obligations. Guarantee companies issue them on behalf of tenants in order to protect landlords from loss in the event of tenant default.
What are the features of rental bonds?
It serves as a replacement for the cash security deposit and covers rent arrears, utility bills, unpaid rent for the remainder of the lock-in period, and property damage beyond normal wear and tear. The tenant is only required to pay a nominal fee, which is a small percentage of the bond amount.
How rental bonds will address the issue of a high number of vacant residential units?
In addition to credit-verified tenants, an institutional guarantee can help address the issue of landlord-tenant distrust. The bond addresses both parties’ concerns at a low cost and eliminates the need for large security deposits. There is a rigorous process in place to verify tenants before issuing a bond on their behalf. Rental bonds could reduce vacant residential units in major cities by institutionalizing the rental market.
Model Tenancy Act
The Union Cabinet approved the Model Tenancy Act (MTA) earlier this month, with the goal of overhauling and expanding the legal framework for home enting. This will boost the real estate market across the country by overhauling the legal framework for rental housing.
“The Model Tenancy Act aims to develop the country’s rental housing market into one that is vibrant, sustainable, and inclusive. Developing an adequate rent stock will eliminate homelessness, according to the government.
The act will also allow for the gradual institutionalization of rental housing by bringing it into the formal market.