What is the pagdi system in India?
Real Estate  

The ‘pagdi’ system is a form of tenancy in India, where the tenant is also part-owner of the property. This system is common in parts of Maharashtra, Delhi and Kolkata. Read on to know whether pagdi system is legal and what is your liability, if you wish to sell a pagdi property that you may have bought long back


One of the most prevalent and long-standing practices, when it comes to housing, has been the ‘pagdi’ system. A popular practice, India saw the pagdi system gather speed during the British rule. Metropolitan cities like Mumbai, Delhi and Kolkata have had the pagdi system for years and even today, it is estimated that there may be over 7.5 lakh pagdi homes in Mumbai.
What is the pagdi system?
A form of tenancy, the pagdi system flourished in the yesteryears, because prior to 1999, there was no need to get into a contract with the landlord for a lease. Rent receipts took care of the whole process. Year after year, the rents would remain the same, as though it was never impacted by inflation.
Is pagdi system legal?
As per the Maharashtra Rent Control Act of 1999 which came into effect from March 31, 2000, the system was made legal. Section 56 of this Act deemed it legal as it reads as follows:
The tenant or any person acting or purporting to act on behalf of the tenant to claim or receive any sum or any consideration, as a condition of the relinquishment, transfer or assignment of his tenancy of any premises;
The landlord or any person acting or purporting to act on behalf of the landlord to receive any fine, premium or other like sum or deposit or any consideration in respect of the grant, or renewal of a lease of any premises, or for giving his consent to the transfer of a lease to any other person.
Therefore, a land owner could confer a kind of ownership to the tenant for a deposit of money. This partial ownership means that the tenant has a certain right over the property but not the land. In this case, the part-owner can even sublet the premises but the rent that he gets must be divided between the actual owner of the property and the part-owner that is the first tenant. The original owner gets to earn a little extra, because of such a provision.
How does transfer of ownership in pagdi system take place?
“There is no prescribed law about charges to be paid to a landlord for an NOC, in case you want to sell the property you bought under the pagdi scheme,” says advocate Anshuman Jagtap. It only prescribes that you seek the prior consent of the landlord, before transferring your tenancy. Usually the part-owner gives some portion of the sale proceeds to the original owner. As per market practices, this is 33% but it could be less or even more. However, there is no such thumb rule.
Do pagdi properties come under RERA?
The government has been contemplating on bringing pagdi properties under the Real Estate Regulatory Authority, which will provide the same benefits and protection to home buyers as available for regular properties. As per the current understanding, tenants in pagdi properties are co-promoters of the project. Given that most of these are old properties, there is a need to redevelop such units. Once pagdi properties come under the jurisdiction of the Real Estate (Regulation and Development) Act (RERA), such tenants would be entitled to compensation if the project is delayed. As of now, the Maharashtra Housing and Area Development Authority (MHADA) collects a tax from such tenants and provides help with the repairs of pagdi properties.
Pagdi property redevelopment benefits


Pagdi system in Mumbai
Additional FSI for pagdi houses: In 2019, the Maharashtra government allowed a discounted additional Floor Space Index (FSI) to developers who were willing to undertake redevelopment of pagdi properties. However, this would result in a 50% revenue loss for the Brihanmumbai Municipal Corporation (BMC) and a final decision is yet to be taken.
Redevelopment rules for pagdi system: Those living in non-cessed buildings before June 13, 1996, are eligible for new flats if their building is being redeveloped, the BMC’s guidelines in 2018 said. Even if the tenant had transferred the ownership formally and legally, the new occupant would be eligible too.
Benefits for developers undertaking redevelopment of pagdi buildings: The Development Control and Promotion Regulations (DCPR) aimed to encourage redevelopment of pagdi buildings by incentivising it. If the real estate developer undertook redevelopment of two to five pagdi buildings, he/she would be eligible for 60% incentive FSI. If there are more than five buildings, the FSI incentive could go up to 70%.



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