Pagdi system is a unique tenancy setup that has been practiced in India even before the country attained Independence. Here’s learning more about the same.
You may have already heard about the Pagdi system for tenants. This system has been in vogue even before India attained Independence. However, the tenant figures under this system have steadily come down over the years. The system was legalized by the Rent Control Act of 1999 and its Section 56. This directs the person acting/purporting to act on the tenant’s behalf or the tenant to get any consideration/sum as the condition of transfer/relinquishment/assignment of tenancy for any specific premises.
The landlord or any individual working on the landlord’s behalf can get any premium/fine/deposit/sum/consideration with regard to the renewal of lease of premises/grant/consent for lease transfer to another individual. This is basically what the Pagdi system is all about. This ensures that in spite of inflation in prices or any other fluctuations in the market, the rent will always stand at nominal levels.
Functioning of the Pagdi system in a nutshell
The Pagdi system works in a manner where tenants will be part-owners of the property but not for the land in question. The tenants will also keep paying their rentals until the premises have been sub-let. This part-owner or tenant may also sell this property although 30-50% of the gross figure should be paid to the actual owner. In case the property’s part-owner rents out the house, the income from the rental will be sub-divided between him/her and the actual owner. This led to real owners gaining some profits from their assets although taxes would not be fully avoidable.
The Pagdi system has always served to offer affordable housing options for people, particularly in major cities like New Delhi and Maharashtra where rental options are on the higher side. There is one aspect which State Governments should take note of, i.e. lower rentals do not incentivize landlords enough for maintaining these structures, and hence they remain neglected with regard to maintenance and other repairs. Landlords of structures under the system may be empowered by several States to hike rental prices by 20-30% for carrying out repairs in the future. However, these decisions taken earlier were revoked owing to protests by tenants. The Government of Maharashtra, while rolling back its decision, also established a committee for analyzing the possibilities of granting rights of ownership to tenants living in the city of Mumbai under the Pagdi system. Such a system with adequate compensation for landlords may help in streamlining things considerably in the current scenario.
