Friends, most people of the younger generation staying in Mumbai (Maharashtra) may not know about the age-old PAGDI SYSTEM of acquiring tenanted property. Pagdi system entails tenants paying a heavy one- time premium to landlords for near-permanent, inheritable occupancy rights in exchange for nominal, controlled monthly rent. This creates a severe deadlock: landlords have no financial incentive to repair properties, leading to structurally unsafe buildings, while redevelopment is routinely stalled by legal disputes and disagreements over ownership rights. Other than nominal rental income, the landlord would get some percentage of the new premium (Pagdi) when one tenant sells his property to another tenant. The amount the landlord was charging for transferring tenancy rights to a new tenant
This century-old Pagdi system was officially dismantled by the Maharashtra government in December 2025. The government announced a new regulatory framework to abolish the arrangement, aiming to unlock stalled urban redevelopment and safeguard both tenant and landlord.
The Context and Transition
- What was it: A pre-independence rental arrangement where tenants paid a large one-time lump-sum premium )pagdi) to landlords in exchange for near-permanent occupancy rights and extremely low, frozen monthly rents.
- Legal Status: The system was previously legalised under Section 56 of the Maharashtra Rent Control Act of 1999.
- Why it was abolished: Decades of frozen rents meant landlords had no financial incentive to maintain buildings, leading to structural decay, paralysis of redevelopment projects, and thousands of dilapidated structures across Mumbai.
The new policy introduces a transparent mechanism enabling the redevelopment of thousands of ageing pagdi properties. It ensures tenants get at least FSI equivalent to their occupied area, gives landlords proportional property rights, and sets up fast-track courts to clear disputes.
Who Gains More: Tenant or Landlord?
The new law appears designed to ensure mutual gains rather than favour one side outright. Tenants benefit from legal clarity, security, and potential ownership in safer homes. Landlords gain financial viability, redevelopment incentives, and relief from decades of frozen rents. If implemented, the biggest beneficiary effectively could be Mumbai itself, as redevelopment of Pagdi properties is expected to revitalise the real estate sector and improve urban safety.
What are the New Guidelines?
1 The guidelines stipulate that the landowner should not manipulate the scheme by introducing fictitious tenants to add to his FSI incentives. According to new rules, whatever the total area the landowner needs to rehabilitate the existing tenants, he will get half of that area in the form of additional construction rights to recover the construction cost and his profit.
2 The new rules further state that tenants are entitled to get more than they currently occupy, a minimum area of 300 sq feet and a maximum of 1292 sq feet, free of cost. If their area crosses the maximum cap, the tenant will have to pay the construction cost of the additional area to the landowner.
3 The rule also states that if two to five tenanted buildings are amalgamated for joint redevelopment, the Developer will get 60% incentive FSI of the total area required to rehabilitate the existing tenants in the form of additional construction rights. The government has offered additional FSI upto 70% of the total existing built-up area if more than five tenanted building plots are amalgamated for joint redevelopment.
4 The landowner requires consent of 51% of the total residents to go for redevelopment and must rehabilitate all the existing tenants in the new structure.
5 After rehabilitating the existing, the Developer utilises the additional FSI to construct more flats for sale to recover expenses and make a profit. The new regulation further says that if societies had paid a premium on the staircase and lift lobby areas when they were constructed, they need not pay it again during redevelopment.
In the end, it is a good initiative by the Maharashtra government.
Anil Malik
Mumbai, India
26th May 2026