New regulatory framework for Mumbais Pagdi buildings announced; what it means

New Delhi: Making a significant announcement in the Legislative Assembly, Maharashtra Deputy Chief Minister Eknath Shinde on Thursday said that Mumbai's decades-old ‘Pagdi' system will now be effectively addressed. He pointed out that separate regulatory framework will be created aimed at freeing Mumbai from the long-standing 'Pagdi' system, while ensuring transparent, fair, and comprehensive redevelopment of 'Pagdi' buildings. The plan will safeguard the legal rights of both tenants and landlords, Shinde said.

In Mumbai, the 'Pagdi' system has posed legal and social challenges for years. The new move to redevelop the 'Pagdi' buildings is a huge leap. 'Pagdi' system has been in existence for decades now.

'Pagdi' means premium. The 'Pagdi' system is an old rental arrangement that was extensively used in Mumbai before the 1940s and is still legally recognised under the Rent Control Act.

It is a traditional tenancy model in which tenants function as part-owners, paying a nominal rent for lifelong occupancy and retaining the right to sell or sublet the premises (with the landlord’s nod).

Under this system, the tenant pays a 'Pagdi' (premium) amount to the landlord, and in exchange, receives near-lifelong occupancy rights. Rents under this system have stayed very low and almost unchanged for years, rendering them negligible when compared to existing market rates.

In several cases, tenants who paid 'Pagdi' were also given a small stake in the property’s ownership, although not full legal ownership. Tenants of these buildings could sell their tenancy rights to another individual for a high amount, which is then shared with the landlord. The incoming tenant would pay a new 'Pagdi' amount to enter into a fresh arrangement.

Shinde said: "Tenants in these structures enjoy protection under the Maharashtra Rent Control Act, while landlords claim they do not get fair compensation because of tenants' extensive rights."

Shinde said the comprehensive regulatory framework is aimed at fast-tracking the redevelopment of Mumbai’s 'Pagdi' buildings, including more than 19,000 dilapidated structures, most of them built before 1960. He said that while some of these buildings have undergone redevelopment, several have collapsed, and nearly 13,000 are still awaiting reconstruction.

Due to low and controlled rent, landlords had no financial incentive to repair or maintain old buildings. Tenants feared they would not get fair benefits in the redeveloped property. Redevelopment of these old and unsafe buildings have also been delayed for decades due to ongoing disputes between landlords and tenants. Because of outdated and complicated laws, tenants were often unsure whether they would keep their space or receive an equivalent flat during redevelopment.

Shinde pointed out: "The redevelopment of Pagdi buildings has received poor response because of legal disputes and structural complexities. A fair and balanced framework that protects the rights of both tenants and landlords is essential."

The new framework will ensure proper and fair redevelopment of 'Pagdi' buildings. It will protect the rights of both tenants and landlords. While providing fair compensation to landlords, the new framework will give tenants a stake or ownership in the redeveloped property, which will address their fears and encourage cooperation.

A separate regulatory body and explicit legal provisions will help reduce court disputes and expedite the redevelopment process. Shinde said that almost 28,000 disputes between tenants and landlords are pending in small-cause courts, stalling redevelopment for decades. With the high court’s approval, the government plans to form additional fast-track courts to clear these cases within three years.

The new framework will also ensure tenants receive Floor Space Index (FSI) equal to their current area, while landlords are allotted FSI corresponding to land-ownership entitlements.

The new mechanism for handling 'Pagdi' buildings will bolster Mumbai’s real estate sector. A number of old, unsafe houses could be turned into modern housing, which can go a long way in tackling Mumbai's housing crunch.