A rental bond is a three-way agreement between the landlord, tenant, and the surety provider. Generally, to protect losses arising from the tenant’s default, landlords follow the practice of taking security deposits from the tenant.
However, landlords still face trust issues with tenants and don’t provide their apartments easily on rent. A rental bond gives landlords a wider and comprehensive cover than the trahttps://www.livemint.com/news/india/how-rental-bonds-can-help-to-end-trust-deficit-between-landlords-and-tenants-11623551570062.htmlditional cash security deposit. The rental bond company or surety provider underwrites the tenant and issues a bond once it is convinced about the credibility of the tenant. If the tenant defaults, the bond pays the landlord the amount of the loss up to the limit of the indemnity under the bond. After that, it proceeds to collect the same from the defaulting tenant.
Vikash Khandelwal, chief executive officer, Eqaro Guarantees, said, “The rental bonds come with an institutional guarantee, and all the legitimate claims are settled within five working days.”
How it works
The landlord and the tenant execute a rental agreement at the time of the tenancy. The agreement lays out the tenancy terms, including the obligations of the landlord and the tenant.
However, it does not assure the landlord of the performance of the tenant’s responsibilities under the tenancy contract (rent agreement). The landlord also does not have the means to assess the credibility of the tenant.
A rental bond covers the landlord for risks of loss emanating from the tenant’s default, including unpaid rent, utility bills, unpaid rent for the breach of the lock-in period, and damages to the property.
By eliminating the need for security deposits, the rental bond makes the property more striking to the prospective tenant and shortens tenant conversion cycles.
Further, the rental bond follows the rent agreement and assures the landlord of the performance of tenants’ obligations that arise under the tenancy contract. This way, the rental agreement is also a must to ensure the enforceability of the rental bond.