Draft Rules on Conversion of Class II to Class I Agricultural Land: A Step Towards Title Certainty in Maharashtra

I. Introduction 

On 14 January 2026, the Government of Maharashtra published the Draft Maharashtra Agricultural Lands (Ceiling on Holdings) (Conversion of Occupancy Class II into Class I Occupancy) Rules, 2026 (“Draft Rules”) for public consultation. The Draft Rules are proposed to be considered on or after 11 February 2026, following which final rules may be notified. 

While not enforceable yet, the Draft Rules signal a significant policy move towards formalising and standardising the conversion of restricted agricultural land holdings into freely transferable titles. 

II. Statutory framework and legislative background 

The Draft Rules operate at the intersection of two land law regimes in Maharashtra. The first is the Maharashtra Land Revenue Code, 1966 (“Maharashtra Code”), which classifies land based on the nature of occupancy rights, including Class I and Class II occupancy. The second is the Maharashtra Agricultural Lands (Ceiling on Holdings) Act, 1961 (“Ceiling Act”), which governs the distribution of surplus agricultural land and the conditions attached to such grants. 

Under Section 27 of the Ceiling Act, surplus agricultural land vested in the State may be distributed to eligible persons, subject to conditions imposed at the time of grant. Land granted under Section 27 is typically held as Class II occupancy, reflecting the State’s intent to retain control over alienation and use of such land. Recognising the long-term constraints this created, the legislature later introduced Section 29A, which empowers the State Government to permit conversion of occupancy rights of land granted under Section 27 from Class II to Class I, on payment of a premium and subject to conditions as may be prescribed. Until now, however, the absence of detailed rules meant that this statutory power remained unevenly implemented. 

III. Class I and Class II occupancy 

Class I occupancy represents the closest equivalent to full ownership under the land revenue framework. The holder enjoys heritable and transferable rights, and the land can generally be sold, mortgaged, or otherwise dealt with without prior government permission, subject to zoning, land-use, and planning laws. 

Class II occupancy, by contrast, is a restricted tenure. Such land is usually granted by the State under agrarian or ceiling legislation, and any transfer, change in use, or alienation requires prior permission of the Collector or the State Government, often accompanied by payment of premium or regularisation charges. From a transactional perspective, Class II land has historically been treated as title-restricted, with lenders and developers viewing such holdings as carrying heightened regulatory and execution risk. 

IV. Position prior to the Draft Rules 

Even before the Draft Rules, Section 29A permitted conversion of Class II land granted under Section 27 into Class I occupancy. However, in the absence of a codified mechanism, conversions were processed administratively by district authorities on a case-by-case basis. There was no uniform eligibility test, no standardised premium, and no predictable timeline. Practices varied significantly across districts, leading to uncertainty for landholders and creating friction in transactions involving agricultural land earmarked for development, financing, or consolidation. 

V. What the Draft Rules propose 

The Draft Rules seek to operationalise Section 29A by laying down a clear and uniform conversion framework. In substance, they provide that: 

• An application for conversion may be made after ten years from the date of grant of land under Section 27. 

• The land must be free from breaches of grant conditions; where breaches exist, they must first be duly regularised. 

• Conversion is permitted on payment of a conversion premium fixed at 50% of the land value, calculated based on the Annual Statement of Rates. 

• Where the conversion premium exceeds INR 1 crore, prior approval of the State Government is required. 

• Upon issuance of a demand notice, the premium must be paid within three months, failing which the application may lapse. 

Importantly, the Draft Rules clarify that amounts previously paid towards unearned income, surcharge, or similar levies at the time of earlier permissions will not be adjusted against the conversion premium. 

VI. Our Thoughts 

The most significant contribution of the Draft Rules lies in the predictability they introduce. They reduce discretionary variance at the district level and allow stakeholders to plan transactions with greater certainty. 

For real estate developers, the implications are particularly notable. Agricultural land allotted under ceiling laws often sits at the earliest stage of the land value chain. While conversion from agricultural to non-agricultural use requires separate permissions under applicable land-use laws, the presence of Class II occupancy has historically been a gating issue even before zoning or development approvals are sought. A clear pathway to Class I conversion enables developers to undertake title cleansing at an earlier stage, improving bankability and easing downstream approvals. 

From a financing perspective, lenders have traditionally discounted or excluded Class II land due to restrictions on transfer and enforcement. A transparent, rule-based conversion mechanism allows lenders to better assess risk and may improve access to credit for landholders seeking to unlock value from legacy grants. 

The Draft Rules also have broader implications for land monetisation and consolidation, particularly in peri-urban and urban-adjacent areas where surplus land granted decades ago now sits in high-growth corridors. By linking conversion to a defined premium benchmarked to market rates, the State simultaneously unlocks economic value while ensuring revenue capture. 

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