The union cabinet approval of the new Model Tenancy Act on 2 June is causing unease among the 2.5 million tenants in Mumbai, especially those who have rented flats under the Pagdi system.
A pagdi system is a legal tenancy system that flourished in the 1940s in which tenants are part owners and the tenancy can be sold after sharing a part of the proceeds with the landlord.
Unlike a regular rental property, where a tenant pays a deposit while moving in, in a Pagdi system, the tenant pays 60-75% of the market price to the property owner and hence is considered part owner of the premises. He has the right to sublet and even sell the tenancy with the consent of the owner by paying a part of the proceeds to the property owner.
The new Act could completely change the status of Pagdi tenants from part owners to mere tenants with no ownership or succession rights. The rentals, frozen since 1940s, would likely increase to match market rates.
In fact, the low rents charged under this Pagdi system is very often blamed for the lack of repairs and maintenance of the dilapidated buildings.
The provisions of the new Model Tenancy Act is a huge setback for tenants like Saroj Naik (name changed), who could lose out on succession rights on her property and also face the eventuality of paying as much as 120 times the current rental amount.
Saroj, 85, inherited a pagdi tenancy from her parents. The rents for her 300 sq ft flat at Dadar increased gradually from about Rs 35 per month to almost Rs 3000 per month. People in the neighbouring building continue to pay rent as little as Rs 180 per month even now. “I had no option but to pay the increasing rents because I couldn’t leave the house,” explains Naik, who has been living there for over 70 years.
The owner can charge market rate for the rents under the new law. In this case, Naik would be forced to leave the house she has spent her entire life in.
If she were to sell her house with a market value of over a crore rupees now, she would have to share about one third of the purchase price with the property owner. Introduction of the new Tenancy Act could completely take away her right to either sell the premises or even pass it on to her descendants.
Living on Pagdi meant Saroj faced regular struggles with her building owner, who would object to every small repair work and even face objections for undertaking painting work in her house. The new law makes clear provisions for that. The owner is expected to undertake major structural and repairs, while tenants are expected to handle minor internal works like changing taps or switches.
The government is actively pushing for redevelopment of entire clusters of old buildings especially in South Mumbai, as that seems to be the only way to redevelop prime properties occupied by tenants under the pagdi system.
This also benefits tenants as they get clear legal ownership of a new property and would not have to share it with the owners.
Legal disputes between landlords and tenants is one of the key reasons for delays in cluster redevelopment process where entire localities like Bhendi Bazaar are redeveloped.
There are welcome provisions in the law like registration of rent deeds between landlord and the tenant on a government portal, setting up of separate rental tribunals to adjudicate rent-related disputes within a specified time frame. Currently, the Small Causes Court hears such disputes and is known for long delays in delivering orders. These might reduce the legal disputes between property owners and tenants.
Leaders of the Shiv Sena including its member of Parliament from South Mumbai, Arvind Sawant have already written to the Chief Minister Uddhav Thackeray seeking that the state should not implement the Act in the area. The letter stated that after its enactment, all the existing Rent Control Acts would be deemed repealed and thus if the law is passed, more than 2.5 million people could be rendered homeless. Sawant has also written to the Prime Minister asking him to scrap the Act.
Maharashtra’s housing minister Jitendra Awhad has already said that the Act won’t be implemented in toto and reaffirmed that the interests of the tenants will be protected.
Though the Union Housing Minister Hardeep Singh Puri has clearly said that the law would be only implemented prospectively and that the model Act is merely a framework for states to follow, the gap between what Puri has stated and the actual content of the written draft is what has raised hackles here, says architect and housing activist Chandrashekhar Prabhu.
“While the minister stated that the Act would come into effect prospectively, there is no such mention in the draft. Also, what also raises concern is the fact that the provisions of the draft of the MTA are very similar to the plea the landlords have made before the Supreme Court while opposing the provisions of the Rent Act,” said Prabhu. He argues that the existing provisions within the Leave and Licence agreement governed by the Indian Easement Act, 1882 and the Maharashtra Rent Control Act,1999 are enough to protect the interests and any remedies, if needed, could be addressed by making necessary amendments to them.
Need for the Act
The government argues that the new Tenancy Act is being brought in to unlock the one crore vacant flats across the country into the open market, to meet the housing shortage.
“It is expected to give a fillip to private participation in rental housing as a business model for addressing the huge housing shortage… It will enable creation of adequate rental housing stock for all the income groups, thereby addressing the issue of homelessness” the government claims.
Pankaj Kapoor, Managing Director of the real estate analyst firm Liases Foras, who was involved in the consultation process for drafting the MTA, doubts if the MTA would fill empty houses with tenants. “About 35-40% of Mumbai lives on rent. Our housing rental market is already has a low rental yield of almost 1%. There are two ways to stimulate supply of housing stock in the market – by introducing fresh supply and by unlocking existing housing units.” He says most investments in the rental residential housing market have been made by investors to take advantage of the tax rebate enjoyed on the interest of home loans. These have led to multiple investments and an artificial rise in property prices. “As on date, due to steep land rates, investments in rental housing are a losing proposition,” added Kapoor.
Pankaj said that the Model Tenancy Act could enable 11 million vacant homes to hit the market, which could result in a further drop in rental yield, thus making the rental market less attractive for investors.
The COVID19 disruption has already impacted the rental market, with migrant professionals from urban metros like Mumbai shifting out to their hometowns and the concept of work from home picking up.