Integrated Tourist Resort Development – The Legal Terrain
On 27 December 2020, the government for the first time introduced a legislative framework for integrated tourist resort development as a separate tourism product in the Maldives.
For the purposes of this article, we will call this product an ITR Development.
What is an ITR Development?
An Integrated Tourist Resort Development is a combo of tourism products with a tourist resort at its base but able to have a mix of resorts, tourist hotels, tourist guesthouses, yacht marinas or other tourism products all in one project.
The project land may come in the form of land (on an island), one or multiple islands, or even lagoons.
An ITR Development may be awarded to a state-owned enterprise or a private party.
If the project is promoted by a private party, it can be awarded (i) for the best proposal received in a public bid; (ii) on acceptance of an unsolicited bid submitted under relevant rules identifying project details; and (iii) under cross subsidy rules.
Designation of an ITR Development
The location for an ITR Development is decided by the president on the advice of the Ministry of Tourism (MOT). In making the submission to the president, MOT has a duty to ensure compliance with all relevant processes and procedures provided in relevant laws and regulations.
Once designated by the president, MOT has the power to grant an ITR Development project to be carried out at that designated location.
Awarding an ITR Development project
An Integrated Tourist Resort Development can be launched with the approval of MOT. That approval is largely contained in the project agreement that takes the form of a project specific lease agreement.
Despite a project agreement, the constituent subsets of the project like resorts, tourist hotels, or tourist guesthouses and the like would still require MOT approval and would need to follow rules applicable to the establishment and operation of those subsets.
Among other things, an ITR Development approval would be given if the location is designated for the purpose; construction meets MOT development standards; services and facilities designated by MOT are available at standards acceptable to MOT: and meets other criteria or standards provided by applicable rules.
Unless specifically excluded by law, all rules applicable to tourist resorts will continue to apply to resorts within an ITR Development.
Introducing developers and investors
In the context of an ITR Development, there are developers and investors. The developer is the main sponsor for the project and the primary lessee of the project land. The developer designates different parts of the land for different products and creates categories of land for different ventures/industry subsets to be housed in that project.
The developer invites investors to be part of the project by allowing them to invest in individual subsets like a resort, tourist hotel, or tourist guesthouse, dive center, eatery/restaurant, retail shop, or any other service provided for tourists.
Signing the project agreement
An ITR Development is awarded to the developer under an agreement with the MOT.
The project agreement must include certain details. Among other things, it needs to identify sufficiently the project land; lease period; construction period; lease rent; rent payment obligations; services to be made available at the project; proposed date of commencement of operation; treatment of breaches; events and consequences of termination; safety and security obligations; and functions relating to establishment and management of public utilities at project land.
Specific statements are also to be included: construction period will not invite any lease rent; developer will continue to bear lease rent payment obligations; and developer is also responsible for the establishment and management of public utilities and arrangement of insurance in respect of them.
Signing the investment agreement
The developer onboards the investor via an investment agreement.
In any investment agreement between a developer and an investor for an individual subset, the following details must be addressed: lease period; lease rent; treatment of breach of agreement and the like.
The investment agreement ought to contain certain other statements as well. For example, the payment of lease rent for the project land will continue to reside with the developer; and that the project agreement with the MOT will take precedence over the investment agreement.
Subsets of an ITR Development
An Integrated Tourist Resort Development can have as its subsets, a combination of these individual tourism products: tourist resorts, tourist hotels, tourist guesthouses, diving centers, eateries/restaurants, retail shops, or any other service(s) provided for tourists.
The establishment of individual subsets within an ITR Development is subject to approvals and permits from relevant government agencies (depending on the nature of the activity).
The project land must carry categories for individual subsets and these subsets must be established only at dedicated land. It is a function of the developer to earmark and demarcate land for specific subsets.
The developer would also be required to submit to MOT for their approval a chart prepared in accordance with MOT guidelines showing categorization of land for individual subsets.
Having a management agreement
In addition to the investment agreement, the developer is to sign a management agreement with the investor as regards utilities provided to or consumed by the individual subsets.
This agreement outlines details of services provided, how they are provided, rates charged by the developer from the investor, and rates charged from the tourists by the investor.
The management agreement must be registered with the MOT.
Conversion of existing resorts
It is possible to convert a land, island or lagoon already designated for tourist resort development into an ITR Development. Any such conversion request will be subject to relevant regulations, MOT approval and payment of a conversion fee of US$1million.
Sublease of rights
The developer can create a sublease of its rights to a third party subject to MOT approval and as provided in the rules relating to grant of rights administered by the MOT. But a sublessee may not be able to further sublease its sub-leasehold rights to another.
In any sublease of the rights available under a development agreement, the sublessee will enjoy the same powers as those of the developer to engage investors for individual subsets and grant them rights in respect of their products – but subject always to MOT rules on grant of rights.
Every investor will also be able to grant management rights to third parties in respect of the management and operation of their subsets.
Licensing requirements
The initial period for an operating license for an ITR Development is 20 years. If the lease period at the time of application for the operating license is shorter than 20 years, the license will be issued for the period remaining of the project agreement.
Also, the operating license for the ITR Development will have to be obtained first before the operating license for any individual subset can be processed.
Where a certain business (conducted by a subset of an ITR Development) requires an additional approval from a government agency (other than MOT), the MOT license for that business will be issued for the period consistent with the practice of those agencies.
The operating license may be terminated if the developer fails to cure a breach of agreement after being given at least 3 months to rectify it.
IMPORTANT NOTES:
References:
Maldives Tourism (Tenth Amendment) Act [Law Number: 35/2020]
Integrated Tourism (Development and Operation) Regulations [Regulations Number:2021/R-64]
Tourist Resorts (Grant of Rights) Regulations [Regulations Number:2010/R-14] as amended
Own Terms
Project Agreement, Investment Agreement, Project Land, and Subsets are our own terms used in this article for ease of understanding only. Terms used in the law and regulations may differ.
Disclaimer
The article contains a general understanding of the relevant rules as they relate to ITR Developments on uninhabited islands and is meant for providing a general understanding of the subject for information purposes only. Certain details may have been omitted in the interest of brevity. It is requested that proper advice be sought in case of a serious examination of the applicable law and regulatory framework.
By MN
Photo: Courtesy of Kudadoo Maldives
