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Full RM + FRM support Instant alerts & premium filters Rent negotiation & relocation helpThe Pagdi System in India & Latest Changes: All You Need to Know
Published : January 31, 2025, 12:00 AM
Updated : May 16, 2025, 2:18 PM
Author :
Simon
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The Pagdi System is a unique rental model in India where the tenants pay a huge upfront amount as Pagdi and a small monthly rent. This gives the tenant the lifelong tenancy and transfer rights, too. It is mostly common in Mumbai and was started in the British era, which blends ownership with tenancy. Under the Pagdi System law (Maharashtra Rent Control Act), landlords have limited control, but the tenants are protected. The Maharashtra government has recently pushed for the Pagdi system redevelopment and regularisation to bring such properties under modern housing law.
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As of 2024, Mumbai registered over 2.09 lakh rental agreements, a 13% rise from 2023 due to rising demand. They have also updated the lease tenure rule, allowing municipal corporations to offer leases up to 30 years to encourage organised rentals.
What is Pagdi System?
The Pagdi-Kiraydar System was introduced before India’s Independence and was a way to avoid paying taxes to the British. In this system, the tenants become part owners of the property, but still pay rent to the owners. If the tenant wants to sell their rights, they must give 30-50% of the sale amount to the property owner, such as Pagdi. As per Section 56 of the Rent Control Act, 1999, this is a legal payment, which is called a premium or fine. The new law of the Pagdi system helps make such a deal clearer. Pagdi properties remain a unique form of tenancy in India and are still popular in Mumbai.
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Understanding Tenant Rights Under the Pagdi System
- No formal lease agreement between property owners and tenants
- Tenants have long-term occupancy rights and often pay very little rent, for example, just ₹800 in South Mumbai today.
- In some instances, tenants are allowed to sublet the property.
Pagadi Meaning and Pagdi System Redevelopment
It is a unique and traditional rental model in India where tenants pay a Pagdi and minimal monthly rent, giving them long-term tenancy rights. In Mumbai, many buildings are old and unsafe for people and need redevelopment. Under the Maharashtra Rent Control Act, tenants are protected, but redevelopment requires the consent of 51% of the occupants. The Development Control and Promotion Regulation (DCPR) 2034 offers incentives to landlords for the redevelopment of the property, which ensures that the tenants have new flats to live in, ranging from 300 to 1292 square feet, without paying anything extra. But if the size of the new flat exceeds the given range, the tenants must pay for the additional area. This is done to modernise the house while safeguarding the tenants' rights.
Key Features of Pagadi System
The Pagdi system is an old rental model in which tenants pay a one-time amount to the landlord and get a long-term tenancy. It follows specific Pagdi system rules and has unique features that still impact property deals today. Below are a few key features of the Pagdi system:
- Lifetime Tenancy Rights: Tenants can stay as long as they want and even pass the property to their heirs under the Pagdi system.
- Low Monthly Rent: Under the Pagdi system, tenants pay a huge upfront amount and then very low rent, which has remained the same for decades. For example, even today in South Mumbai, some tenants pay the rent of ₹800 while others pay around ₹20,000 for the same property.
- Transfer Rights: Tenants can also transfer their rights to someone else by taking part in the new Pagdi amount.
- Limited Control of Landlords: Under the Pagdi system, the tenants have more control, and the landlord cannot evict the tenant easily or raise the rent as they want.
Pagdi System Law and Taxation
The Pagdi rent system is governed by specific rules under the Maharashtra Rent Control Act. It affects the rights, taxation and income of the tenants and the landlords in the Pagdi system law. Below are a few points on law & taxation to understand it a little better
- Pagdi Law System
- Tenant Protection: Under the Maharashtra Rent Control Act Pagdi System, tenants cannot be evicted easily and enjoy lifetime tenancy benefits, which makes it difficult for the property owners to reclaim or redevelop.
- Landlord Restrictions: Under the Pagdi rent system, landlords cannot increase the rent at their choice and must obtain legal approval. This gives the owners very minimal returns from the property.
- Redevelopment Consent: Redeveloping the Pagdi property requires consent from most of the tenants living there. The builder must provide alternate accommodation to the tenants during the work.
- Pagdi System Taxation
- Capital Gains of Landlords: When landlords receive money or property during the redevelopment, they must pay a capital gains tax on their share per the capital income tax law.
- Transfer Taxation: In a Pagdi system, if the tenant transfers the right to another, the received Pagdi amount may be taxable depending on the agreement and value received.
- TDS Applicable: If the Pagdi amount or the compensation exceeds ₹50 lakhs, then the buyer must deduct TDS (Tax Deducted at Source) before making the payment to tenants or landlords.
Pros And Cons of the Pagdi System
The Pagdi is a traditional rental system and is different from the typical renting process. If you are a tenant in Mumbai and have tenancy rights under the Pagdi system, then you, as a tenant, will have a partial ownership of the rental property. Below are a few pros and cons of the Pagdi system:
- Pros of the Pagdi System
- Low Rents for the Tenants: Under the Pagdi system, tenants pay a low rent after paying the initial Pagdi amount, which makes living affordable for people who need long-term housing, especially in an expensive city like Mumbai.
- Mutual Benefit: Under the Pagdi system, tenants and owners have equal benefits. If the property owner decides to sell the building and its land to the real estate developer, the tenant will be given a substantial percentage of the sale amount to vacate the place. So, for example, if you paid around ₹8000 in the early 1960s and the property is sold for ₹40 lakh in 2025, then the tenants will get ₹10-20 lakh to move out.
- Transferable Rights: Tenants can transfer their occupancy rights to others, often earning a share of the new Pagdi amount, as mentioned in the Pagdi system agreement format.
- Cons of the Pagdi System
- Limited Landlord Income: The landlord received very low rent for almost a decade. This can be financially challenging for landlords, especially without regular Pagdi system agreement format updates.
- Redevelopment Challenges: Under the Pagdi system, tenants also have rights on the property, so getting consent from most tenants delays redevelopment, making it hard to renovate the old and unsafe building.
- Legal Grey Areas: The Pagdi system often does not have clear documentation, and informal deals can lead to legal disputes and complications between the landlord and the tenants.
Pagdi Properties: Can Landlords Kick Out Tenants on a Whim?
In the Pagdi system, landlords cannot evict tenants arbitrarily. They can only do so for specific reasons allowed under the law. The following are some of the reasons for which a landlord can evict a tenant in the Pagdi system:
- Non-payment of rent by the tenant: If the tenant fails to pay the rent on time, the landlord can initiate eviction proceedings against them.
- Subletting of the property: If the tenant sublets the property without the landlord's permission, the landlord can evict them.
- Illegal activities: If the tenant engages in illegal activities on the property, the landlord can evict them.
It is important to note that the landlord must follow the due process of law when evicting a tenant. They must serve a notice to the tenant and follow the procedures laid down in the Maharashtra Rent Control Act, 1999.
At NoBroker, we understand that the eviction process can be complicated and stressful for both landlords and tenants. That's why we offer a range of real estate services, including property management and legal assistance, to help landlords and tenants navigate the process smoothly.
Passing on the Pagdi Property: Who Gets to Call the Shots?
In the Pagdi system, the ownership of the property and the tenancy rights are intertwined. The following are some of the scenarios in which the transfer of ownership and tenancy rights can take place:
- Inheritance: If the original tenant passes away, their heirs can inherit the property and the tenancy rights.
- Sale: The tenant can sell their tenancy rights to another person. However, the landlord has the right of first refusal, which means they have the option to buy the property before anyone else.
- Redevelopment: In case of redevelopment, the landlord can offer alternative accommodation to the tenant in the new building. The tenant can choose to accept or decline the offer. If they decline, the landlord must pay them compensation.
It is important to note that the transfer of ownership and tenancy rights in the Pagdi system can be complicated and requires legal expertise. At NoBroker, we offer legal assistance to help landlords and tenants navigate the process smoothly.
Inclusion Of Pagdi System Under RERA
The Real Estate Regulation and Development Act (RERA), launched in 2016, helps protect homebuyers and makes the real estate sector more transparent. Under RERA, developers must register their projects, follow the approved plans and clearly state the timeline of the project. In case they fail to do so, they have to pay a penalty. In its latest update, in 2025, RERA introduced a one-click feature that allows buyers to easily access detailed information about projects and builders. This builds trust, and the buyers can make an informed decision.
The Pagdi system in Mumbai is a unique rental model in which tenants initially pay a huge Pagdi and then a very low monthly rent. Many buildings are old, and the redevelopment generally takes a long time and can be tricky.
Latest News on Pagdi System in Mumbai
The latest news on the Pagdi system in Mumbai highlights that the Pagdi tenants are worried as the government has failed to defend them in court. The Maharashtra government missed an important deadline to submit its stance in a Supreme Court case challenging the Maharashtra Rent Control Act. This has raised concerns among the Pagdi tenants about their potential eviction and loss of their rights. The Pagdi system lawyers in Mumbai, representing the tenants, emphasise that the government should actively defend the legislation and protect the rights of 30 lakh people affected by the Rent Control Act.
Pagdi System vs. Lease Agreement: Key Differences
The Pagdi system and the lease agreement are rental agreements but differ in legal rights, duration and ownership. Below are the major comparisons between the two:
| Features | Pagdi System | Lease Agreement |
| Ownership Rights | Semi-ownership feel; long-term occupancy | No ownership; limited to the lease period |
| Rent Control | Low, regulated rent | Market-based rent |
| Transferability | Often transferable with landlord consent | Usually non-transferable |
| Eviction Rights | Difficult to evict due to the rent law | The landlord can evict once the lease ends |
| Payment Structure | One-time lump sum (Pagdi) | Regular monthly rent only |
Know Your Rights and Get the Right Legal Counsel with NoBroker
When it comes to legal issues and paperwork, you need to be extremely careful, even the slightest mistake could mean a huge loss. For example, getting a home loan on a property under the Pagdi System can be difficult, as many ownership issues remain prevalent with old properties. If you want property rights transferred to your name, you also need to go through a cumbersome process for the ownership rights to be established and the banks to approve your loan application. Furthermore, the Maharashtra Rent Control Act of 1999 makes it clear that any pagdi tenant’s family member staying with the deceased tenant at the time of his/her death is the first eligible from the family to be the successor in continuing the tenancy. Note that the tenancy rights are not transferable under a Will, and therefore you need to show evidence of staying with the tenant at the time of death. There are a lot of possibilities to consider, lots of paperwork to go through, and a lot of legwork – therefore a lot of odds of mistakes to occur.
The best way to avoid such mistakes is to get a team of professionals to assist you. At NoBroker, our experts will guide you and ensure your paperwork is perfect. Or if you need help financing your new home, simply leave it to us! Here at NoBroker, we can help you get a loan at the lowest rate in the market! What’s more, we give you a dedicated Loan Manager to assist you through the entire process and ensure your loan gets dispersed within 72 hours. Click on the link below to check your eligibility and get started. If you have any questions, drop us a comment below and we will get back to you.
Frequently Asked Questions
Ans. The Pagdi system is a pre-independence rental law that gives the tenant certain ownership rights over the rented property, including the right to sub-let the property or even sells it while giving a share to the original owner.
Ans. While there are efforts to modernize or abolish the archaic Pagdi system documentation altogether, the system was made legal as per the Maharashtra Rent Control Act of 1999 and came into effect in the year 2000 and follows the new law for pagdi system in Mumbai.
Ans. If the original owners choose to sell the building with its land to a new real estate developer, you as a tenant will be given a substantial percentage of the current sale amount to vacate the premises.
Ans. The amount received from the sale of the Pagdi property is a capital asset and you can save tax on such long-term capital gains by reinvesting in a new home.
Ans. Getting a home loan on a property under the Pagdi System can be difficult, as many ownership issues remain prevalent with old properties. If you want the property rights transferred to your name, you need to establish your ownership rights for the banks to approve your loan application.
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