INTRODUCTION
Many residential and commercial properties in Maharashtra are occupied on ‘pagdi’ or tenancy basis. Questions that naturally arise are whether such premises can be sold, whether the landlord can lawfully claim payment of ‘pagdi’, what happens to the tenancy rights after the original tenant’s death, whether such tenancy rights can be bequeathed by way of will, etc.
MEANING
‘Pagdi’ is a form of tenancy governed by the Maharashtra Rent Control Act, 1999 (“the Rent Control Act”). It differs from conventional tenancy in certain ways. In the ‘pagdi’ system, the rent payable by tenants is minimal; usually, a fraction of the prevailing market rent and tenants have certain rights that resemble ownership rights.
TRANSFER OF PAGDI FLATS
‘Pagdi’ flats or premises can be sold or transferred on ownership basis or by way of assignment of tenancy rights. This is done by execution of tripartite agreements between the landlord, outgoing tenant and incoming tenant/owner. It is lawful for the landlord to charge ‘pagdi’ or premium at the time of such transfer and such right has been expressly recognised under Section 56 of the Rent Control Act. The Rent Control Act does not prescribe the minimum or maximum percentage that maybe charged by the landlord by way of ‘pagdi’ and the same is determined by the commercial negotiations between the parties. In practice, landlords usually take anything between 30% to 50% of the total consideration by way of ‘pagdi’ at the time of transfer.
WHAT HAPPENS TO TENANCY RIGHTS ON THE DEATH OF A TENANT
Section 7 of the Rent Control Act provides for two categories of persons to be treated as stepping into the shoes of the deceased tenant (i) any member of the tenant’s family residing with him at the time of his death and in the absence of such member, (ii) any heir of the deceased tenant as may be decided in default of agreement by the court. From a reading of the above, it becomes clear that the legislative intent is first to give protection to the family members of the tenant residing with him at the time of his death.
“14…The basis for such prescription seems to be that when a tenant is in occupation of premises the tenancy is taken by him not only for his own benefit but also for the benefit of the members of the family residing with him. Therefore, when the tenant dies, protection should be extended to the members of the family who were participants in the benefit of the tenancy and for whose needs as well the tenancy was originally taken by the tenant. It is for this avowed object, the legislature has, irrespective of the fact whether such members are heirs in the strict sense of the term or not, given them the first priority to be treated as tenants. It is only when such members of the family are not there, the heirs will be entitled to be treated as tenants as decided, in default of agreement, by the court. In other words, all the heirs are liable to be excluded if any other member of the family was staying with the tenant at the time of his death…[1]”
WHAT HAPPENS IF THERE ARE NO FAMILY MEMBERS LIVING WITH THE TENANT AT THE TIME OF HIS DEATH
If there are no family members living with the tenant at the time of his death, it could become a ground for recovery of possession by the landlord.
CAN TENANCY RIGHTS BE BEQUEATHED BY A WILL
Tenancy rights cannot be bequeathed by a will. They will devolve in accordance with Section 7 of the Rent Control Act.
In the case of Anant T. Sabnis v. Vasant Pratap Patil[2], a Division Bench of the Bombay High Court specifically dealt with the question of whether tenancy rights can be bequeathed under the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 (“the Bombay Rent Act”). It is pertinent to note that the definition of tenant under the Rent Control Act is similar to and along the same lines of the definition under the Bombay Rent Act and the Bombay Rent Act was repealed by the Rent Control Act. A Division Bench of the Bombay High Court answered this question in the negative and the same was upheld by the Supreme Court of India. The reasoning given by the Bombay High Court was as under.
“11. Prohibition against transfer of tenancy rights by the tenants is just a corollary to the restrictions on landlords and is aimed at protecting them, in turn. By preventing the tenants from abusing these protections, by thrusting uncontemplated strangers as tenants on the landlords, willy nilly, for monetary gain or favouring any friend or relative of theirs, and thus ensuring that the immunity against eviction is not expanded into license to dispose of premises as if it were their own and landlords rights are not invaded beyond what is strictly necessary. Contemplated protection is intended for the benefit of the tenants inducted by the landlords voluntarily and the members of his family residing with them and not for their unauthorized assigns, transferees or his favourites or strangers. Even all his lawful heirs are not included within the sweep of this protection. Prohibition appears to have aimed at the very disposing power of the tenant over his tenancy rights and includes every voluntary transfer, contractual or otherwise…”
The Court further held that the definition of tenant under the Bombay Rent Act does not include the term legatee which demonstrates the legislative intent to prohibit testamentary disposition of tenancy rights. The Court also considered Section 15 of the Bombay Rent Act which corresponds to Section 26 of the Rent Control Act. This section prohibits tenants from sub-letting, assigning or transferring the whole or any part of the tenanted premises, subject to any contract to the contrary. The question considered by the Court was whether the words ‘assign’ and ‘transfer’ used in Section 15 of the Bombay Rent Act would include a testamentary disposition by will. The Court held that the words assign and transfer were not specifically defined under the Bombay Rent Act and therefore, would have to be given their ordinary dictionary meaning. There was no reason to exclude a testamentary disposition by will from the ambit of the words assign and transfer. Therefore, the restriction in Section 15 would also apply to testamentary dispositions by will.
The paramount object of the Bombay Rent Act and Rent Control Act is, no doubt, to give protection from eviction to the family members of the deceased tenant. However, the right of the landlord to recover possession cannot be completely excluded in the absence of family members and heirs of the deceased tenant. To balance the rights and interests of tenants and landlords, the Rent Control Act has set out the procedure to be followed in the event of death of a tenant. To this extent, testamentary disposition has been restricted.
CONCLUSION
From a tenant’s perspective, being able to occupy and reside in valuable real estate by paying nominal rent for generations together is a boon. Further, if the tenant’s family is unlikely to continue residing in the premises after the tenant’s demise or the tenant’s family lives in another city or country, the tenant can cash upon his tenancy right by transferring or assigning his tenancy rights during his lifetime and move to another premises. From a landlord’s perspective, given that the rent is nominal and far below market rent, the only opportunities for a landlord to cash upon his properties are by (a) receiving ‘pagdi’ or premium at the time of transfer or assignment of tenancy rights or (b) recovering possession of the premises, subject to fulfilment of certain conditions.
[1] Vasant Pratap Pandit v. Dr. Anant Trimbak Sabnis [1994 (3) SCC 481: 1994 MhLJ SC 1450]
[2] Anant T. Sabnis v. Vasant Pratap Pandit [1979 MhLJ 755]
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