Sell or Redevelop? A Landlord’s Guide to Old Tenanted Buildings in Mumbai

In short: the owner of an old pagdi or tenanted building in Mumbai usually has two routes. Selling outright to a developer or investor brings a certain amount now, but at a price that reflects the tenancies. Redeveloping the building, usually through an agreement with a developer, can bring the landlord more in total, in new flats or a share of sales, but the return comes later and depends on the project being completed. Which route is right depends on the plot, the tenants, the family’s needs and how much risk the owners are prepared to carry.

Landlord or tenant of a pagdi or cessed building? Get a free first assessment from Mungekar Realty of your building’s redevelopment options. Register your property or WhatsApp us on +91 98207 44734.

Why the decision is different for a tenanted building

In a tenanted building, the landlord owns the land and the structure, but the protected tenants have the right to stay, and in redevelopment eligible tenants are entitled to new homes free of cost. Whoever redevelops the building, whether the landlord together with a developer or a buyer who has purchased it, must rehouse them. So the real question for a landlord is not whether the tenants will be accommodated, but how much of the remaining value comes to the landlord, when it comes, and with what risk.

Route 1: Sell the building outright

The landlord sells the land and building, with the tenants in place, to a developer or investor. The buyer takes over the tenancies and, later, the redevelopment.

• Certainty: the full price is received on registration of the sale.
• No involvement: the landlord does not deal with approvals, construction or tenant negotiations.
• No project risk: delays, cost overruns or a developer running into difficulty no longer affect the landlord.
• A clean exit for families: useful where several co-owners or legal heirs want to settle their shares.

The limitations are equally clear. The price reflects the tenancies and the buyer’s own risk, so it is usually well below what the land would fetch if it were vacant. The landlord does not share in the value created later, when the project is approved and built. And capital gains tax arises in the year of sale.

Route 2: Redevelop with a developer

The landlord signs a development agreement or a joint development agreement with a developer. The developer obtains the approvals, rehouses the tenants, builds the new building and sells the additional flats. The landlord’s return comes as new flats or commercial units in the building, a share of the sale proceeds, a cash payment, or a combination of these.

• A larger total return, in most cases: the landlord shares in the value created by the redevelopment incentives, such as those under Regulation 33(7) for cessed buildings in the Island City or 33(7)(A) for tenanted buildings in the suburbs.
• Property in the new building: the family can keep flats or shops of its own.
• Control over key decisions: the landlord chooses the developer and negotiates the terms.

Against this, the return arrives several years later and depends on the developer completing the project. The tenants’ consent and the approvals have to be obtained, and the agreement must be drafted with great care. Our article on the landlord–developer agreement for a pagdi building sets out the clauses to insist on.

What decides which route suits you

• The plot and the regulation that applies: whether the building is cessed, the plot size, the road width and any heritage or coastal restrictions decide how much can be built. See our guides to cessed buildings under 33(7) and tenanted buildings in the suburbs under 33(7)(A).
• The tenants and their area: the number of tenants and the area they occupy affect how much sale area remains after rehabilitation, which is where the landlord’s return comes from.
• Tenant consent and records: a building with clear tenancy papers and cooperative tenants is worth more under either route. See getting pagdi tenants to agree to redevelopment.
• The condition of the building: a dangerous-building notice starts a fixed timeline under Section 79A of the MHADA Act. Read what to do after a C1 notice.
• Title and family: every co-owner and legal heir must be identified and in agreement. See family-owned property and legal heirs.
• The family’s needs: whether the owners need funds now, or can wait several years for a larger return.

How to compare the two routes properly

1. Get a feasibility report that works out the total buildable area, the area needed to rehouse the tenants and the sale area left over.
2. On that basis, estimate what the building would fetch in an outright sale. Our guide to valuing a land parcel explains how tenanted property is valued.
3. Estimate the landlord’s share under redevelopment, and when it would be received.
4. Compare the two after tax, allowing for the time and the risk involved, with the help of a chartered accountant.
5. Speak to more than one developer before deciding.

A middle path

The choice is not always one or the other. Many agreements combine a payment on signing with flats or a share of sales on completion. This gives the landlord some funds early while keeping part of the value created by the redevelopment.

Frequently asked questions

Can I sell a building that has pagdi tenants?

Yes. The tenancies continue under the new owner, which is why the price reflects them.

Do the tenants have to agree to a sale?

Selling the landlord’s interest does not generally require the tenants’ consent. Redeveloping the building does: the applicable regulation requires the consent of a specified majority of eligible tenants.

Which route brings more money?

Redevelopment usually brings a larger total, but later and with more risk. Only a study of your specific plot can show how large the difference is.

Deciding what to do with your building?

Mungekar Realty helps landlords of pagdi and tenanted buildings across Mumbai compare an outright sale with redevelopment, based on what the plot can actually support. Register your property or call or WhatsApp us on +91 98207 44734.

This article is general information, not legal, tax or financial advice. Rights and tax treatment depend on the facts of each case; consult an advocate and a chartered accountant before deciding.