Rental bonds are a form of financial guarantee that tenants provide to landlords. In India, the concept of rental bonds is not very common. Instead, landlords often require tenants to provide a security deposit, to be used to cover any damages or unpaid rent at the end of the tenancy.
As security deposit can be a financial burden, rental bonds turn out to be beneficial for both. The rental bond company or surety provider underwrites the tenant and issues a bond after charging a fee , providing the landlord with a credit verified tenant. The tenant is charged an amount to issue the bond. If he defaults on rent or causes any damage later, the surety provider will pay the landlord up to the indemnified amount and recover the costs from him.
Benefits for landlords
Financial protection: It provides landlords financial protection in case tenants fail to pay rent or cause damage to the property during the tenancy. The landlord can use the bond money to cover any unpaid rent or damages caused by the tenant.
Encourages responsible tenancy: It encourages tenants to take care of the property and fulfil their obligations under the lease agreement. This reduces the risk of damage and makes the tenant responsible.
Provides a sense of security: A rental bond provides a sense of security to landlords that their investment is protected, and they can recover their losses if anything goes wrong during the tenancy.
Adhil Shetty, CEO, Bankbazaar.com, says, “While rental bonds are not common in India, security deposits fulfil a similar purpose here. Security deposits can provide landlords with financial protection against non-payment of rent or damage to the property caused by tenants during the tenancy. The requirement of a security deposit or rental bond encourages tenants to take care of the property and fulfil their obligations under the rent agreement. On the other hand, landlords are expected to fulfil their obligations as per the terms of the agreement.”
Benefits for tenants
Increased chances of getting approved: Paying a rental bond upfront increases the likelihood of being approved for a rental property, especially if the tenant has a limited rental history or bad credit.
Protects tenants’ rights: It allows the tenant to live in a well-maintained and safe rental property. If the landlord fails to maintain the property or breaches the lease agreement, the tenant can use the bond money to cover the costs of repairs or seek legal remedies.
Encourages landlords to return the bond: It encourages landlords to return the bond in full at the end of the tenancy, provided there is no damage or unpaid rent. This ensures that tenants receive their money back and are not unfairly penalised.
Rental bonds, thus, are helpful in addressing many key issues because of which disputes may arise between both landlords and tenants. They provide financial security, encourage responsible tenancy, and protect the rights of both parties.
It is, however, important to go through the rental agreement document carefully and consider the following things before signing a rental bond:
1. Check the condition report: You should thoroughly check the condition report of the property before signing the rental bond. Make sure that any existing damages or issues are documented, so you will not be held responsible for them later.
2. Read the lease agreement: Before signing the rental bond, you must read the lease agreement carefully. Make sure you understand your responsibilities as a tenant and what you are agreeing to.
3. Understand the payment terms: It is essential to understand the payment terms regarding the rental bond, such as the amount you need to pay, the due date, and the refund policy.
4. Ask questions: If you have any questions or concerns, do not hesitate to ask your landlord or property manager before signing the bond. It is better to have clear understanding and avoid future confusion.
5. Take pictures: You should take pictures or videos of the condition of the property before moving in, so you have evidence of its initial condition.
BUILDING TRUST
- Rental bonds can help in bridging the trust deficit between landlords and tenants
- It provides financial security, encourages responsible tenancy, and protects the rights of both parties
- Understand the terms of the bond such as amount to be paid, due date & refund policy