Maharashtra Government Announces End to Mumbai's 'Pagdi' System: A Regulatory Framework for Fair Redevelopment

The Devendra Fadnavis-led Maharashtra government has decided to set up a dedicated regulatory framework aimed at freeing Mumbai from the 'pagdi' system, a move widely seen as strengthening the city's real estate market. While making the big announcement, Deputy CM Eknath Shinde also said that the new framework is aimed at protecting the rights of tenants and landlords alike.

Maharashtra has proposed a regulatory framework aimed at freeing Mumbai from the 'pagdi' system of dealing in realty assets. This is a traditional rental model where the tenant acts as a part-owner of the property by paying a lump sum initial payment and enjoying special rights to the property, such as subletting, at a relatively lower rent.

In a major step towards modernising and strengthening the local real estate market, the Maharashtra government -- led by CM Devendra Fadnavis -- on Thursday announced the establishment of a regulatory framework aimed at freeing Mumbai from the 'pagdi' system of dealing in realty assets. This is a traditional rental model where the tenant acts as a part-owner of the property by paying a lump sum initial payment and enjoying special rights to the property, such as subletting, at a relatively lower rent.

The historic announcement was made by Deputy CM Eknath Shinde. Speaking in the state's legislative assembly, he said that the dedicated regulatory framework will ensure the city's 'fair and proper' redevelopment, while protecting the rights and interests of tenants as well as landlords.

Over 19,000 Mumbai buildings are known to follow the 'pagdi' system. The Deputy CM informed the assembly that more than 19,000 cessed, pre-1960s buildings in the city are known as 'pagdi' buildings. While some of these buildings have already been redeveloped, others have deteriorated and collapsed, and nearly more than 13,000 buildings are still awaiting redevelopment, he said.

Tenants living in these properties are protected under the Maharashtra Rent Control Act, a more than two-decade-old state law that regulates rentals in select premises. The law aims to balance the interests of landlords and tenants alike. Under the Maharashtra Rent Control Act, tenants living in these cessed buildings are legally valid through their agreements. However, over the years, several landlords have complained that they do not receive fair compensation for their ownership, citing the tenants’ rehabilitation rights. Local courts are flooded with multitudes of pending disputes between tenants and landlords, noted Shinde.

This is a common challenge across pagdi-operated rented buildings in the city, and one that warrants the creation of a dedicated framework to ensure their proper and fair redevelopment. For economically weaker sections and low-income groups, granting the Floor Space Index (FSI) alone is not enough, said the Deputy CM. FSI is a crucial urban planning tool that determines the maximum permissible built-up area on a plot of land.

Provisions must also be made for the cost-free reconstruction of their homes, and for this purpose, a separate regulatory framework will be created, said Shinde. Shinde also told the assembly that the proposed rules will include several significant provisions, including those for granting FSI equivalent to tenant-occupied area, granting the original FSI to landlords (based on land ownership), and providing incentive FSI required for the cost-free reconstruction of the homes of 'pagdi' holders from economically weaker and low-income groups (EWS and LIG).

If, for any reason, said Shinde, such as height restrictions or other limitations, it is not possible to use all three types of FSI entirely and the remaining FSI will be made available in the form of Transfer of Development Rights (TDR). TDR enables owners to sell unused FSI from land needed for public use. Shinde also said that the framework will clear the way for the redevelopment of old 'pagdi' system buildings, preventing the collapse of dilapidated buildings while avoiding the loss of life and property.

Existing redevelopment options such as 33(7) and 33(9) will continue to be available, he said. He also said that this will serve as a new option for buildings that have not yet benefitted from these schemes. There are about 28,000 tenant-landlord disputes over such properties currently pending in local courts, with many families stuck in litigation for decades. These disputes, he said, must be resolved in order to accelerate redevelopment.

With the prior approval of the High Court, adequate additional fast-track courts will be established to dispose of these cases, with the expectation that all cases will be resolved within the next three years, he said. The Deputy CM also said that the scheme will provide ownership homes to lakhs of Mumbai residents living under the 'pagdi' system, and neither tenants nor landlords will face any injustice. He also said that the state government is committed to resolving any challenges related to the process.