The Maharashtra government is preparing a major overhaul of Mumbai’s century-old pagdi tenancy system in a move aimed at bringing clarity to ownership, balancing the interests of landlords and tenants, and accelerating the redevelopment of ageing housing stock.

As Mumbai continues to face scarcity of land and ageing housing stocks, these changes come as a solution to bringing transparency in ownership and clear tenancy titles, according to a report by Outlook Money.

The pagdi system is a traditional tenancy arrangement that has supported the people for decades. This system is quite prevalent in Mumbai. Under this system, tenants will pay an upfront premium (pagdi) to a landlord in exchange for right to occupy the unit, along with lifelong tenancy protection and significantly subsidised rent.

The landlord legally owns the unit, tenants enjoy near-ownership benefits, including the ability to transfer tenancy rights to someone new. This tenancy is transferred by splitting the pagdi amount between the landlord and the previous ‘tenant’ in a pre-decided ratio.

The system became widespread because it helped landlords secure a form of income quickly without losing their legal ownership rights. It used to work efficiently previously, as it served the interest of both landlords and tenants, but now it has created grey areas, in conflicting ownership claims, and complications in redevelopment projects across south and central Mumbai.

Most pagdi properties fall under cessed building category, which is old rent-controlled buildings in Mumbai. The constructions are dated before the 1960s. Most of these structures fall under the C1 (Critical, demolition required), C2A/C2B (major repairs or redevelopment required) and C3 (minor repairs) according to the Brihanmumbai Municipal Corporation (BMC) safety assessments.

Redevelopment or action for these structures has been slow mostly due to these contradictory ownership claims between landlords and tenants. Sorting these is difficult as there are no clear guidelines on compensation of pagdi settlements. Builders also show reluctance to take up projects due to uncertainties around tenant lists, rents arrears and litigation.

The government’s planned overhaul aims to modernise the framework, ensure fair compensation, and fast-track redevelopment in high-density zones.

Although the final policy is yet to be released, the direction set by Chief Minister Eknath Shinde indicates a major restructuring of the pagdi system.

A key area of reform is the title of ownership and the rights that come with it. The government is considering formally recognising the tenants as part owners in these situations, especially at times when redevelopment becomes a need and there’s no room left for negotiation.

For tenants, this means more clarity and better compensation with ownership of the units they have been promised by the owners.

For landlords, these reforms could help unlock long-stalled properties and ensure they get to receive a fair share from the redevelopment benefits. Developers would also benefit from this framework since it would make the redevelopment financially and legally viable.