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Riya Tayal | 21 Apr 2022

Things to Know About Pagdi System in India

Things to Know About Pagdi System in India

When it comes to housing in India, one of the long-standing and most prevalent practices has been the "Pagdi System". Today, metropolitan cities like Kolkata, Delhi, and Mumbai have been practising the Pagdi System for years. And, you will be surprised to know that as per estimation, there can be over 7.5 lakh Pagdi homes in Mumbai.

If this brief excites you to know more about the Pagdi System in India, this post is for you! Let's dive in and learn everything about the Pagdi System.

What is the Pagdi System?

The Pagdi System, a form of tenancy, flourished in the yesteryears because before 1999, there was no need to get into a contract with the landlord for a lease. At that time, rent receipts took care of the entire process. Also, year after year, the rents would remain unchanged, as they were never impacted by inflation. 

In other words, we can say that the Pagdi System is a rental model widely prevalent in the country. However, it slightly differs from the typical renting agreement. In the Pagdi System, the tenant is also the co-owner of the real estate and pays a nominal amount as rent compared to the market "asks" rates. Besides this, the tenant also enjoys additional rights of selling or sub-letting the real estate.

Let’s understand this with the help of an example. Say there are two parties, A and B. A is the landlord, and B is the tenant. Here, A owns the property that B wants to buy. According to the Pagdi rental system, B would pay a lump-sum principal amount known as the Pagdi to A. In place of Pagdi, A will ensure that B enjoys lower rentals, irrespective of the market rates, and has the co-ownership of the real estate, however that too with specific terms and conditions. 

The Legality of the Pagdi System

As per the Maharashtra Rent Control Act of 1999, the Pagdi System was made legal. Section 56 of this Act deemed it legal as it reads the following:

1. The tenant or any other person acting or purporting to act on behalf of the tenant to receive or claim any sum or consideration as a condition of the relinquishment, transfer, or assignment of his tenancy of any premises. 

2. The landlord or any person acting or purporting to act on behalf of the landlord to receive any premium, fine, or other like deposit or sum or any consideration in respect of the grant or renewal of a lease of any premises or for giving his/her consent to the transfer of the lease to any other person. 

Therefore, the landowner could confer ownership to the tenant for a deposit of money. This partial ownership means that the tenant has a certain right over the real estate but not the land. In this scenario, the co-owner can sublet the premises, but the rent that he/she will receive must be divided between the actual owner of the real estate and the part-owner that is the first tenant. Because of such a provision, the property's original owner gets to earn a little more. 

Do Pagdi Properties Come Under RERA?

When it comes to Pagdi properties, most people are confused regarding whether Pagdi properties come under RERA. Well, we are here with an answer!

The government of India has been contemplating bringing Pagdi properties under the RERA, ie. Real Estate Regulatory Authority. This will offer the same protection and benefits to the home buyers as available for regular properties. As per the current scenario, tenants in Pagdi properties are the co-promoters of the project. Given that most of the properties are old, there is a high need to redevelop such units. 

And, once Pagdi properties come under the jurisdiction of the RERA, such tenants will be entitled to compensation if the project is delayed in any case. MHADA, i.e., Maharashtra Housing and Area Development Authority, collects tax from such tenants and offers help with the repairs and maintenance of Pagdi properties. 

Benefits of Pagdi System

1. Pagdi system is a legalised form of tenancy under the provisions of the Maharashtra Rent Control Act, 1999.

2. The tenant can be a co-owner of the property but not the land.

3. Lower rents than the current market rates in metropolitan cities like Delhi and Mumbai. 

4. In case of any redevelopment, the tenant can be the co-promoter. 

5. Transferable tenancy to the family with terms and conditions. 

6. The tenant, as a co-owner of the property, has both selling and subletting rights. 

To conclude, the Pagdi System falls short of balancing the requirements of landlords and tenants in the current society and is pretty outdated. And this calls for either suitable changes to be made to this tenancy system to suit the needs of the new era or be wholly abolished. 

Also read: What is a Lease Agreement and What are its Important Elements?


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