What is Pagdi system?
Pagdi is a traditional tenancy rental model in India where the renter is also part owner of the house (not the land). He enjoys nominal rates compared to the market rates for rent and also has both subletting and selling rights for the property. The practice was legalized in 1999 by Section 56 of the Rent Control Act, stating that the tenant or any party acting on behalf of the landlord can claim or receive any sum or any consideration as per the agreement between him and the tenant. Let’s explore more here.
The Pagdi system in Mumbai ensures the tenant that the rent for the property remains nominal despite the rise in inflation or any other market fluctuations. Under the Pagdi system law in Mumbai, tenants pay rents as low as Rs. 500 for a property with market rates going as high as Rs. 60,000 or more.
There are many issues related to this rental model, the most prominent one being – redevelopment. Once the flats are fully constructed, and complete ownership is transferred to the landlord, the builder gathers his profits and leaves. The part ownership levies the burden of maintenance on the tenant and the renters, who are co-owners and manage the housing finance together. Given the nominal rent that the tenants receive, they remain deterred from carrying out any maintenance work for the house, resulting in dishevelled structures all around Mumbai. There have been reports of old properties falling and leading to casualties time and again in Mumbai.
The State Government and the tenants are pushing for amendments in the Maharashtra Rent Control Act of 1999 to ensure properties above 847 square feet and 547 square feet (popular average of the houses under this system) pay rents equivalent to the market rates, almost 200 times the rent paid under this system. This move will ensure these tenants slowly phase-out of this archaic system towards a more progressive Model Tenancy Model as proposed by the Central Government.
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Now that you know what is Pagdi system, let us talk about its inclusion in the RERA Act. The government is actively trying to bring the deceased building controlled by the Pagdi System under the Real Estate Regulation (and Development) Act, 2016 (RERA) and provide protection and rent security to the tenants. The Maharashtra Housing and Area Development Authority, which receives taxes from these properties, has taken the onus to redevelop these structures. Around 16,000 properties in Mumbai are cessed for repairs, including Pagdi properties.
The Mumbai Development Control and Promotion Regulations 2034 (DCPR) provides attractive incentives to the landlords of these buildings to encourage their redevelopment work. These incentives are given based on the total area required to rehabilitate the occupants.
There are other areas in the country, places like Chandni Chowk in Delhi, that still practice this age-old practice that dates to the pre-independence era. Not only does it prevent the landlord from enjoying the benefits of owning the property, but it also demotivates him from taking care of it. If the current protests from the landlords and the government bear any fruit, many such structures will be saved, and any accidents will be prevented from happening.
Additional Read: How to Check RERA Registered Projects in Mumbai
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