The Pagdi system is a traditional tenancy model which is prevalent in India even before the country attained Independence. It was started in the pre-independence era solely for the reason of evading taxes paid to the British government. It is similar to other rental models but is a bit different from the typical renting arrangement in a way that the renter too is the co-owner of the property and pays nominal rent as compared to market rates. 

We can explain this concept with the help of an example. Let’s consider there are two parties: A and B wherein A is the landlord and B is the tenant. A has a property that B is interested in and wants to buy the same. Thus, accordingly, B would pay A lump-sum principal amount which is referred to as Pagdi. Under this concept, A would ensure that B not only enjoys lower monthly rentals but also has the co-ownership of the property.

The above method was legalized by Section 56 of the Rent Control Act, 1999 which provided that the tenant or any party acting on behalf of the landlord can claim or receive any sum or any consideration as per the agreement between him and the tenant. Thus, the landlord can confer this kind of ownership to the tenant for a deposit of money. Moreover, the government is planning to bring tenanted or cessed buildings and tenants of such buildings under the provisions of Real Estate (Regulation & Development) Act, 2016 (RERA). It is an auspicious moment that for the first time the same protection would be available to these consumers as those available to the other home buyers. Currently, the MHADA (Maharashtra Housing and Area Development Authority) collects a tax from such tenants and helps them with the repairs of such properties. 

Advantages and Disadvantages:

Some advantages of the Pagdi system are as follows:

1. Lower rents than the current market rates
2. Tenant can be a co- owner of the premises
3. Tenant as a co-owner of the property has both subletting and selling rights
4. Transferable tenancy to family, with conditions
5. The tenant can be a co-promoter in case it undergoes redevelopment

Every coin has two sides. Similarly, the disadvantages of this system are:

1. The tenant becomes a co-owner of the premises but not of the land
2. Rents are low for the premises even in the prime locations
3. Tenants have to spend from their own money for the renovations and repairs of the premise
4. Lower rentals do not incentivize landlords enough for maintaining these structures

The fact that the system has been going on since the pre-Independence era has to be acknowledged first. The Pagdi system has always served to offer affordable housing options for people. This is the sole reason why metropolitan cities like Mumbai, Delhi and Kolkata have had this system for years and is going on even today! The Central government released the Draft Model Tenancy Act, 2021 on June 02, 2021 to institutionalize rental housing in India. It will definitely be prospective in nature if it’s adopted by the Government of Maharashtra but a point to ponder whether it would impact the properties that have been let out in this system.