In Part 1 of our series, we explored what the Pagdi system is, how “quasi-ownership” works in bustling Chennai markets like Sowcarpet and Pondy Bazaar, and how tenants and landlords navigate these unique arrangements.
However, because Pagdi sits in a grey zone between traditional renting and full ownership, it is one of the most heavily litigated real estate topics in India. When disputes break out over inheritance, unauthorized transfers, or a landlord’s desire to reclaim property, how do Indian laws and courts handle them?
The most important point to remember is that the legal title of the property stays strictly with the landlord—the tenant only holds occupancy rights, not ownership.
In this second part of our series, we break down the legal formalities, the impact of modern tenancy laws in Tamil Nadu, and how courts adjudicate complex eviction claims like bona fide personal requirement.
How Rent Laws Have Changed Over Time
To understand Pagdi legal fights, it helps to see how tenancy laws have evolved:
- Old Rent Control Acts (1940s to 2000s): Laws like the old Tamil Nadu Buildings (Lease and Rent Control) Act, 1960 were made to protect tenants from unfair eviction. Rents were locked at very low rates from decades ago. These tenants became statutory tenants (tenants protected by law from being kicked out, even after their lease expires).
- Modern Laws (TNRRRLTA 2019): Tamil Nadu introduced a new law called the Tamil Nadu Regulation of Rights and Responsibilities of Landlords and Tenants Act, 2017 (which came into force in February 2019). This law requires a written agreement registered on the state portal (
tenancy.tn.gov.in). Modern laws no longer support unwritten, open-ended rental arrangements for new contracts.
Who Inherits the Tenancy When a Tenant Dies?
When an original Pagdi tenant passes away, arguments can break out between family members or between the family and the landlord over who gets the space.
- Joint Tenancy: Indian courts have ruled that all legal heirs inherit the tenancy rights together as joint tenants (multiple people holding the same tenancy rights as one single group).
- The Active Working Check: Courts look at who was actually running the business or living in the property with the original tenant before they died. A family member who lived far away cannot suddenly show up and claim the shop.
- Passing Down Property Rights: Tenancy rights are treated as part of the deceased person’s estate (the total money and property left behind by a person when they die) and pass down to legal heirs according to personal inheritance laws.
Transferring the “Goodwill” (Shop Running-Rights)
When an old shopkeeper in a market, running the shop under this pugri system, wants to shut down or retire, they do not just hand the keys back to the owner for free.
Instead, they sell their goodwill (the established value, customer reputation, and right to run a business in that exact shop location) to a new merchant. The incoming tenant pays a massive lump sum for these running-rights and the underlying low-rent arrangement.
To make this transfer legal and safe, the outgoing tenant must bring the building owner into the deal early, share an agreed cut of the payout with them, and get their written permission. Without the landlord’s formal written consent, handing over the shop to a new merchant is treated by courts as illegal sub-letting, which can get the new tenant evicted.
Can a Landlord Evict a Pagdi Tenant?
A landlord cannot kick out a Pagdi tenant just because they want to rent the shop to someone else for a higher price. To win an eviction case in court, the landlord must prove specific reasons allowed by law:
A. Unauthorized Sub-letting
Sub-letting (when a tenant rents out the property to a third person without the owner’s permission) is a major legal violation. If the original tenant secretly hands the shop keys to a new person without written consent from the landlord, the court will usually allow the landlord to take back the property.
B. Not Paying Rent (Willful Default)
Even if the monthly rent is very small (like ₹500 a month), failing to pay it continuously after receiving formal legal notices is called willful default (intentionally avoiding rent payments despite reminders), which is valid grounds for eviction.
C. Genuine Personal or Business Need (Bona Fide Requirement)
Bona fide requirement (a genuine, honest, and pressing need by the landlord to use their own property) is a common reason landlords bring to court.
- The Owner Decisions Rule: Courts have often ruled that the landlord is the master of their own business choices. A tenant cannot tell the landlord how or where they should run their business.
- Need, Not Greed: The court strictly checks if the owner truly needs the space for themselves or their family to live or run a business.
- No Excuses for Higher Rent: If the owner has other empty commercial spaces in Chennai, or if they just want to evict the tenant to make a bigger profit, the court will dismiss the case. The owner carries the burden of proof (the legal duty to provide evidence to prove a claim in court).
In old Pagdi or rent-controlled properties, getting a shop back for “personal use” is very hard for landlords. To win in court, owners must provide heavy proof—like financial records, clear business plans, and evidence that they do not own other empty shops nearby. Tenants often fight back by claiming the owner is just using a trick to kick them out for higher rent, leading to court battles that drag on for years. Because of these long delays, many landlords give up on court cases and prefer to pay the tenant a cash settlement instead.
Negotiated Buyouts (The Most Common “Exit Strategy”)
Because fighting a multi-generational Pagdi tenant in Indian courts can take decades, many property owners choose a financial shortcut known as a buyout or surrender settlement:
- Instead of waiting for a court order, the owner offers the tenant a negotiated lump-sum cash settlement.
- In exchange, the tenant voluntarily surrenders their quasi-ownership/tenancy rights, hands back the keys, and allows the owner to reclaim clean, unencumbered title of the property.
- Once the owner gets vacant possession, they can renovate the building and lease it out or sell it at true, modern market rates.
Legal Formalities for Tenants and Landlords Today
- For Landlords: Do not take cash advances without proper paperwork. If you want an old Pagdi property back, negotiating a fair cash payout with the tenant is usually faster than fighting a court case that can take 10 to 20 years.
- For Tenants: Keep all your rent receipts, utility bills, and tax records safe. Always get written consent from the landlord before transferring the business to anyone else.
On-Site & Document Verification: Through physical site visits and digital checks, Verified.RealEstate team inspects daily operations and local rent records directly. This on-ground investigation helps uncover the true nature of the tenancy—identifying whether occupants are paying regular market rent or operating under an old heavy-deposit or Pagdi system.
Disclaimer: This article is for general informational purposes only and is not legal advice. Property and tenancy laws vary by case and location. Always consult a qualified lawyer before making any property decisions or financial commitments.