Maharashtra Ends the Century-Old Pagdi System with New Legislation

The Maharashtra government has announced a major policy shift by introducing a new regulatory framework to dismantle the century-old Pagdi system, a rental arrangement deeply embedded in Mumbai’s housing history.

Deputy Chief Minister Eknath Shinde stated that the move aims to resolve long-standing disputes, provide legal clarity to tenants and landlords, and fast-track redevelopment of thousands of ageing, dilapidated buildings across the city.

This marks one of the most significant reforms in Mumbai’s urban housing sector in decades.

What Is the Pagdi System?

The Pagdi system, a pre-Independence rental arrangement, became widespread in Mumbai before the 1940s. Though informal in nature, it continues to be recognised under Maharashtra’s Rent Control Act.

How the System Works

• Tenants pay a large one-time premium (pagdi) to the landlord.
• In return, tenants receive near-permanent occupancy rights.
• Monthly rents remain extremely low, often unchanged for decades.
• In many cases, tenants can resell their tenancy rights, sharing proceeds with the landlord.

Despite its longevity, the system creates an unusual situation where tenants enjoy long-term possession, while landlords earn minimal rent and retain limited control over their property.

Why the Pagdi System Became Problematic

Over time, the Pagdi model began to strain Mumbai’s housing ecosystem.

Key Challenges

• Negligible rent income, making upkeep financially impossible
• Buildings falling into disrepair and structural risk
• Redevelopment deadlocks due to fear of displacement or unclear rights
• Black money transactions from informal tenancy sales
• Legal ambiguities, leading to prolonged disputes and court cases

With thousands of Pagdi buildings aging and becoming unsafe, Mumbai’s redevelopment pipeline remained stuck for decades.

What the New Law Proposes

The new framework seeks to modernize Mumbai’s rental ecosystem while balancing the interests of both tenants and landlords.

Likely Provisions

• Defined ownership or stake for tenants in redevelopment projects
• Fair compensation or revised rent models for landlords
• Clear legal rights, obligations, and documentation
• Standardised redevelopment rules
• A dedicated regulatory authority to reduce litigation and improve transparency

These measures aim to break the stalemate that has prevented redevelopment for years.