The Pagdi System in India: Your All-in-One Quick Guide to Understanding its Significance

In simpler terms, a ‘Pagdi’ system is an Indian form of tenancy, where the tenant is also the part-owner of the property in question.

The practice is most common in parts of India like Maharashtra, Kolkata, and Delhi.

But what does this system entail? Is it legal and what are the liabilities? What are you need to sell the Pagdi property bought ages ago? If questions like these are popping in your head, then let me tell you, you have arrived in the right place as we, through this blog discuss everything in and out about the Pagdi system – The most prevalent and long-standing practices which are especially practiced when it comes to housing/real estate.

Pagdi System – What Is It?

It is a form of tenancy that is flourished into the yesteryears since, in the past, that is the years prior to 1999, there was no need for a contract between the landlord for a lease. In fact, back then, the receipts of the rent took care of most of the process.

This system (Pagdi) speeded during the British rule when metropolitan cities such as Mumbai, Kolkata, and Delhi had practiced it for many years and continuing today, with about an estimate of over 7.5 lakh Mumbai Pagdi homes.

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Is Pagdi Legal?

According to the Maharashtra Rent Control Act 1999, the Pagdi system is legal. This is what Section 56 of this Act deemed in terms of its legality:

The tenant or any other person purporting or acting on behalf of the tenant in order to receive or claim any sum or consideration of the assignment, relinquishment, or transfer of his tenancy of the premises;

The landlord or other person purporting or acting on behalf of the landlord in order to receive any fine, sum or deposit or any consideration of the grant, or renewal of a lease of any premises, or for giving consent to the transfer of a lease to any other person

This means a landowner can confer a kind of ownership to a tenant to deposit money. They, the partial ownership would then have a certain right over the property but not on the land.

Here, the part-owner could even sublet the premises but the rent must still be divided between the actual and the part-owner of the property, which is the first tenant. Without any doubt, the original owner gets to earn a tat bit extra due to the provision.

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Does The Pagdi Property Come Under RERA?

Yes, irrespective of the fact that the government has been contemplating on bringing the Pagdi properties under the Real Estate Regulatory Authority, it now provides some crucial benefits and protection to buyers of the home and also for the regular properties.

Keeping the current perspective in mind, the tenants in Pagdi properties are also the project’s co-promoters. While most are older properties, there is no need to redevelop such units. However, as these properties are under the RERA, which is the jurisdiction of the Real Estate (Regulation and Development) Act, the tenants would be entitled to compensation if the project is delayed.

As for now, the Maharashtra Housing and Area Development Authority or the MHADA collect the tax from the tenants and help with the repairs for these properties.

To Conclude: The Transfer Of Ownership In A Pagdi Property

When it comes to selling the property acquired through the Pagdi process, there is no prescribed law in response to the charges that are to be paid to a landlord for a NOC. The only thing that is documented is that you must seek prior consent from the landlord in order to sell/transfer the tenancy.

In general cases, the part-owner does give a portion of the sale proceeds to the property’s original owner. As per the practices of the market, it should be about 33% but can also fluctuate as there is no thumb rule through the law.

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