Lease vs Pagdi System in Maharashtra : Key Differences, Legal Framework & Case Laws (2026 Update)
The announcement by Eknath Shinde in December 2025 to introduce a regulatory framework aimed at phasing out the century-old Pagdi system in Mumbai marks a significant and transformative shift in Maharashtra’s housing policy.
This move aims to resolve long-standing tenant–landlord disputes and accelerate the redevelopment of old and dilapidated buildings in Mumbai.
Against this backdrop, understanding the difference between lease and pagdi system in Maharashtra has become more important than ever for property owners, tenants, and legal professional.
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What is the Pagdi System in Mumbai?
The Pagdi system is a pre-Independence tenancy arrangement widely prevalent in Mumbai, especially in buildings constructed before the 1940s.
Under this system:
A tenant pays a substantial one-time premium (Pagdi) to the landlord
In return, the tenant receives long-term or near-permanent occupancy rights
Monthly rent remains extremely low, often unchanged for decades
Tenancy rights can be transferred or sold, with proceeds shared with the landlord
Although ownership legally remains with the landlord, the tenant enjoys strong statutory protection under rent control laws.
The system is legally recognized under the Maharashtra Rent Control Act, 1999.
Legal Recognition of Pagdi System
Section 56 of the Maharashtra Rent Control Act, 1999 expressly permits:
Acceptance of premium (Pagdi)
Transfer of tenancy rights with landlord’s consent
This makes the Pagdi system unique, as it combines elements of tenancy with marketable rights.
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What is a Lease under Indian Law?
A lease is governed by the Transfer of Property Act, 1882.
Legal Definition (Section 105)
A lease is:
A transfer of the right to enjoy immovable property for a certain time, in consideration of rent or premium.
Key Features of Lease
Transfer of interest in immovable property
Exclusive possession granted to the lessee
Governed primarily by contractual terms
Can be short-term or long-term (including 99 years or more)
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Lease vs Pagdi System: Key Differences
1. Nature of Rights
Lease → Contractual + proprietary interest
Pagdi → Statutory tenancy right
2. Payment Structure
Lease → Regular rent or premium + rent
Pagdi → Heavy upfront premium + nominal rent
3. Legal Protection
Lease → Based on contract and general law
Pagdi → Strong protection under rent control legislation
4. Transferability
Lease → Depends on agreement terms
Pagdi → Transferable with landlord’s share
5. Eviction
Lease → Governed by contract + law
Pagdi → Extremely difficult due to tenant protection
Judicial Approach Towards Pagdi & Tenancy Rights
1. Strong Protection to Tenants
In Damadilal v. Parashram, the Court held:
A tenant under rent control law has more than contractual rights
Such tenancy creates a statutory interest in property
This principle strongly supports Pagdi tenants’ legal position.
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2. Commercial Value of Tenancy Rights
In Natraj Studios Pvt. Ltd. v. Navrang Studios, the Court recognized:
Tenancy rights can have commercial and transferable value
Protection of tenants is a core objective of rent control laws
This aligns directly with the functioning of the Pagdi system in Mumbai.
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Practical Reality of Pagdi System in Mumbai
In cities like Mumbai:
Pagdi tenants often occupy premises for generations.
Rent remains negligible compared to market rates.
Landlords face significant challenges in eviction
In practice, Pagdi tenants often enjoy stronger possession rights than leaseholders.
Impact of 2025 Reform Proposal
The proposed reform by Eknath Shinde aims to:
Simplify tenant-landlord conflicts
Facilitate redevelopment of old buildings
Potentially phase out or regulate Pagdi system
If implemented, this could transform Mumbai’s real estate landscape.
Conclusion
Understanding the difference between lease and Pagdi system in Maharashtra is essential for avoiding costly legal mistakes.
A lease is a contractual transfer of property rights
The Pagdi system is a statutory tenancy model with powerful legal protection
The Supreme Court of India has consistently emphasized that property rights depend on the nature of interest created and the governing law.
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The distinction between a lease and the Pagdi system lies at the heart of property law in Mumbai. A lease, governed by the Transfer of Property Act, 1882, is rooted in contract and creates a defined legal interest based on agreed terms. In contrast, the Pagdi system, recognized under the Maharashtra Rent Control Act, 1999, operates as a statutory tenancy model where the law itself safeguards the tenant’s rights, often extending protection far beyond contractual boundaries. Judicial precedents have consistently reinforced that while leasehold rights depend on the intention of parties, Pagdi tenancies derive their strength from legislative protection. As Maharashtra moves towards reforming this traditional system, understanding this distinction is crucial for both landlords and tenants navigating the evolving housing landscape.