Pagdi System in India

While renting a home, a person has to find a place, then pay the rent, with some lump-sum amount that is entirely or partly refundable while moving out. The amount of rent differs from place to place. One of the most general and long-standing rules has been the Pagdi system. Today, metropolitan cities like Mumbai, Delhi, and Kolkata have rehearsed the Pagdi method for decades. 

Pagdi is a standard living model in India that is closely associated with tenants' rights. Pagdi is a standard living model in India. It is similar to other rental contracts. It also involves a landlord and a tenant, the difference is that in the Pagdi system, the tenant is also the co-owner of the property, wanting the selling and subletting rights. Let’s learn more about it.

What is the Pagdi system and How It Works?

Pagdi is a traditional living rental model in India in which the tenant is also the house's co-owner but not the land. The tenant enjoys nominal rates corresponding to the market rates for rent and has both selling and subletting rights for the property. It became legal in 1999, stating that the resident or any person acting as the owner can claim or accept any sum according to the landlord and tenant contract. 

There are many issues related to this rental model, the most significant being renovations. Once the flats are constructed and exclusive rights are given to the owner, the builder collects his gains and leaves. The co-ownership is transferred to the landlord and the tenants, who are co-owners and jointly handle the house's finances. Given the nominal rent that the tenants receive, they remain deterred from carrying out any maintenance work for the house, resulting in chaotic structures.

According to the traditional system, the tenant is a co-owner of the home (not land). They keep paying the rent until he has not sub-let the belief. This tenant or co-owner has the right to sell the property, but a portion of the tenant should give nearly 30-50% of the amount to the owner. When renting a house (by the tenant), the amount is divided between both (owner and tenant). It generally results in the owner earning some profits from their asset, but the tax will be low or avoidable.

The Pagdi system has raged in India recently, especially in Maharashtra and Delhi. Here most tenants under the Pagdi system have a rent contract with them and haven't paid any heavy amount. The Pagdi system provides the resident that the rent for the property stays nominal despite the rise in inflation or any other market changes. As per the Pagdi system law, residents pay rent little as 500 for a property whose market value is as high as 60,000.

The tenants and the government are trying to get the revisions in the 1999 act to provide properties exceeding 847 sq. feet and 547 sq. feet pay rents similar to the market rates, almost 200 times the rent is paid under this system. This move will provide these residents slowly phase out of this ancient system towards a more advanced Model presented by the Central Government of India.

Rules Followed in The Pagdi System

The Pagdi system is prevalent in some parts of India. Its rules are informal and often based on customary practices and traditions. However, some general rules that are typically followed in the Pagdi system are:

Lump sum payment:

Under the Pagdi system, tenants pay a lump sum amount as a security deposit to the landlord, which can be several times the monthly rent.

Rent-free period:

After paying the security deposit, tenants are not required to pay any further rent to the landlord.

Inheritance rights:

In some cases, tenants under the Pagdi system have the right to pass on the tenancy to their heirs or successors.

No written agreement:

The Pagdi system is typically an informal arrangement, and there may not be a written agreement between the landlord and the tenant.

Limited rights for tenants:

Tenants under the Pagdi system may not have the same legal rights and protections as tenants under regular rental agreements and may not have the right to challenge the landlord's decisions.

Maintenance & repairs:

The property's responsibility for maintenance and repairs may be shared between the landlord and the tenant, depending on the terms of the agreement.

Termination of tenancy:

The tenancy under the system can be terminated by the landlord or the tenant, depending on the terms of the agreement.

It is essential to note that the rules and customs of the Pagdi system may vary depending on the region, community, and the specific agreement between the landlord and the tenant.

Advantages of Pagdi System

According to the provisions of the Maharashtra Rent Control Act, 1999, it is a legal form of tenancy. The resident has the right to co-owner the property but not the land and has both selling and sub-letting rights.

The tenant’s family associates living with the dead resident during their demise can permit the family as the heir to follow the residence.

Low rents than the current market rates in significant urban cities such as Delhi, Bangalore, and Mumbai. In case of redesigning, the tenant has the right to be a co-promoter of that property.

It offers the security of tenure to the tenants, who can occupy the property indefinitely until they pay rent. The amount paid by the tenant at the start of the residence is often less than the rental rates staying in the market. Thus, tenants can save money.

This incentivizes landlords to keep the property and keep it in a good state, as the amount payment made by the tenant is often a notable percentage of the property's value.

Disadvantages of Pagdi system

Although the Pagdi system is legal and has numerous advantages, followed by some drawbacks for the tenant and owner, the following are some disadvantages of the Pagdi system in India:

The resident can be a co-owner of the property but not of the land. So, there is no use in being a property owner. After paying the amount, tenants cannot control the rent. Owners can increase the rent, and tenants have no legal resort to challenge it.

Residents may have to go along with the renovation of the property. Lower rentals must incentivize owners to follow such systems, so they stay neglectful about supervision and other restorations.

Landlords take lump-sum compensations, but the ratio goes excessive for years into the residence. Rents are very low for the premises in the prime locations of the municipalities. Tenants ought to spend from their pockets for the repairs and renovations of the property.

The Pagdi system can be exploitative, with owners demanding excessive amounts from tenants. It can be a significant financial burden for tenants, mostly targeting marginalized communities.

The system isn't legally identified in most parts of India. Thus, tenants do not have legal protection against eviction, and the law does not recognize their rights.

To sum up, the Pagdi system has some advantages, such as security of tenure and lower rental rates. Still, it has several disadvantages, such as a lack of legal protection, control over rent, and exploitative practices. Thus, there is a need for the state to control the Pagdi system and protect the rights of tenants.

Laws Related to the Pagdi system

The Pagdi system, also known as the Pagdi rent system, is a type of tenancy agreement found primarily in Mumbai, India. The laws related to the Pagdi system are mainly governed by the Maharashtra Rent Control Act, 1999, and the Maharashtra Land Revenue Code, 1966. Here are some essential laws related to the Pagdi system in Mumbai: 

1. The Rent Control Act

The Rent Control Act was a plan made by the Indian Government to stop the misuse of tenants by landlords. Rent legislature tends to provide fair rents to landlords and security of tenants from eviction. But the tenants have been paying fixed rates as rent since 1947. This RCA, along with the security of tenure, has yet to give any encouragement or motivation to the landlord for reconstruction goals, so most of the property has a poorly kept look. 

2. Maharashtra Land Revenue Code, 1966

This code governs land revenue administration in Maharashtra and includes provisions related to the Pagdi system.

3.  Maharashtra Housing and Area Development Authority (MHADA) Act, 1976

This act creates the MHADA, which is responsible for the development and management of housing schemes in the state. The MHADA also has the authority to regulate the Pagdi system and provide for its redevelopment.

4.  Maharashtra Rent Control Act

The 'Pagdi' system becomes legal under Section 56 of this act. The amount paid to an owner as a premium, fine, or Pagdi has become legal under Section 56 of the RCA act, 1999. It is now also legal for a tenant to get any sum concerning the redevelopment or tenancy transfer. The person implying to act to get any acceptable, high price, or other similar aggregate or store, or any thought about the award, or recharging of any beliefs, or for giving his approval to the rent exchange to another person.

5.  Maharashtra Rent Control Bill 1999

The government has recently proposed changes to the Maharashtra Rent Control Act, 1999, concentrating on business and private renters who live on properties larger than 847 square feet and 547 square feet and lease across a few Mumbai systems is limited by the Pagdi system. It was passed with revisions by the legislative council and assembly, which aspired to unify the three Rent Control rules in the State of Maharashtra. The new Act, also known as the Maharashtra Rent Control Act 1999, got several modifications in the RCA Bombay. This Act does not apply to any beliefs belonging to the State or local power. Any beliefs let or sub-let to banks, Public Sector Projects, or Companies set by or under any state or central Act.

6. Real Estate Regulatory Authority (RERA)

The government is considering bringing Pagdi homes under the Real Estate Regulatory power, giving property buyers the same safety and benefits as regular properties. As per the current contract, tenants in the Pagdi house seem to be co-owner of the home (but not the land). Given that most of these are ancient homes in which renovating is required. When the RERA act applies to Pagdi homes, the tenants will be entitled to harm if the delay happens.

7.  The Suggested Model Tenancy Act

The proposed Model Tenancy Act will allow owners to implement any rent and raise it as suitable. It will apply to all occupancies, renters, and beliefs. Many tenants may have paid for the maintenance and repairs of the properties from the previous ten years.

The Legality of the Pagdi System in India

An owner may grant the occupant a residence for a monetary deposit in this method. The tenant has some rights over the asset but not the land. In this contract, the co-owner may rent the property but should share the rent they receive among the owner and tenant (co-owner).

The Pagdi system in Mumbai ensures the tenant that the lease for the property stays apparent despite the rise in growth or other market clashes.  The Government aims to bring the expiring framework bounded by the Pagadi System under the RERA act 2016 and give security and lease guards to the residents. The MHADA (Maharashtra Housing and Area Development Authority) which collects property taxes states that about 16,000 homes in Mumbai (inc. homes under the pagadi system) are obeying this process for renovations and other repairs.

Current Legal Status of The Pagdi System

The most recent news about tenants still living in neglected Pagdi homes resumes for tragic causes. The preface of the new Act, 2021, is not something that will impact or create any issues for the residents living there. According to a recent interview with The Economic Times with the Urban Affairs secretary and the Ministry of Housing, the new regulation doesn't take the current rental contracts under its purview.

Even if the previous Act gets voided, its laws and regulations will continue controlling existing places and conflicts. Similarly, the new rules and regulations could enable more private participation to institutionalize and investors in rental housing for individuals – extending the market to be worth about Rs. 3 lakh crores, and helping the growth of the national economy. With that, it can build more than 11 million houses, helping the government of India.

The metropolitan plan has obtained good reactions from public and private entities in more than 17 union and state territories. It will secure the Pagdi system tenant rights for others in India.

Conclusion

As implied by Section 56 of the RCA act of 1999, approved the amount paid to the property owner as a consideration, premium, or fine. The act adopts a tenant to get any sum to move or relinquish their residency rights.

However, the system's challenges, especially landlord-tenant disputes, require urgent attention and reform to ensure that it continues to serve its intended purpose while safeguarding the rights and interests of all parties involved.

The Pagdi system needs to catch up in terms of the needs of tenants and landlords in the enduring society and is ancient, which calls for either valid changes to be made to the tenure system to suit the needs of the new world or be rejected. We hope you understand the idea of the Pagdi system if you need more clarity. If you are facing any landlord-tenant disputes or require legal assistance regarding the Pagdi system, it is advisable to consult with a lawyer specializing in landlord-tenant disputes. 

About The Author:

Adv. Yash Chadha is leading International lawyer with offices spread across India, UAE, United Kingdom and USA. His offices are a full service law firm, undertaking the full spectrum of legal work – for private clients, we are renowned for medical laws, domestic and international crimes, civil litigation, trusts, contracts and wills and probate, and for business clients we have teams dealing with the full range of sports laws, corporate and commercial law, dispute resolution, arbitration, real estate and commercial property laws. He is dedicated to providing the finest customer contact solutions to each of his clients.