Seen more as an overhaul of the existing legal landscape, the Maldives Government is proposing a series of amendments to the Tourism Act. The bill is now being reviewed in parliament.
The amending bill which goes into some 30 pages is about revising the lease rent, introducing new tourism products, legalizing some existing practices, and bridging existing gaps in the law.
If adopted into law, this would be the 10th amendment to the Tourism Act since the law was first enacted in 1999.
From a quick glance at the bill, the following key takeaways are noted.
The bill introduces the concept of ‘private islands’. It provides the seminal legislative framework to create, lease, develop and manage private islands.
Unlike many other jurisdictions, a private island is given a rather unique definition in this bill. Roughly speaking, it is about a land created out of a lagoon by a developer and leased to an investor who enjoys it for non-commercial use.
There are some resort properties which are leased to joint venture companies. These are created under a joint venture agreement between the government and private investors. These companies generally have a nominal government shareholding. The existing law provides a legal mechanism for the private investor in the company to buy back the government held shares and make it wholly private.
With this new bill, curtains are about fall on this practice as the bill aims at repealing the relevant provisions in the Tourism Act which allow for buy back of government shares.
Those investors who had already exercised their judgment to buy back those shares and taken their companies outside of a business relationship with the government can have a sigh of relief. The legal avenue will now close for those investors who had procrastinated the share buyback process.
Until now, the Maldives tourism leases have been based on a simple concept. One lease for one resort property even if the resort may consist of more than one physical island (whether natural or created). There are investors who have combined more than one natural island or created additional islands on their own to fit a certain product description for their hotel property. However, they have not been able to divest the additional island(s) or deal in them separately because the government recognizes the islands as part of a single lease.
There have been some isolated departures from this long established concept in the not too distant past and the legal validity of those instances (of departure) has invited dispute and debate.
With this new amendment, the government aims at departing from its earlier policy as enshrined in the law and mainstream the practice of splitting an existing lease into separate leases.
When the amendment is adopted, the investors with multiple islands (forming part of the same hotel under one lease) would be able to split their existing lease into many leases and deal in them individually. That means the investor would be able to either sell one island or sublease it to another as if it were a separate lease.
In acting on an earlier government announcement that it was considering the reduction of tourism land applicable to properties in far flung islands – towards the north and south of the country – a new rent regime is being proposed in this amending bill.
When the bill becomes law, there would be two schedules of lease rent: (i) one for tourism land leased for resorts, hotels, yacht marinas, and integrated tourism development; and the other (ii) for tourism properties on inhabited islands.
According to the proposed rent schedules the country is divided into four main geographical zones. Properties in each zone is further divided into three categories based on land area.
The new rent regime is to kick in from 1 January 2021.
Under the current law, a tourism lease is generally granted for 50 years. If an investor wants to have a full ninety-nine-year lease, it does have the option to buy the additional 49 years for a single payment of US$5m after bringing the property into operation and meeting some other criteria.
The amendment now puts a time limit on that right to buy an extension. If an existing tourism property wants to buy an extension of 49 years, it can do so for US$5m if it agrees to settle payment within the next 2 years. If it wants to exercise that right after the close of those 2 years, the lease extension payment would double to US$10m.
The bill also devotes a good deal of space on the launch of integrated tourism development projects. According to the definition provided in the bill, the term refers to commercial tourism ventures where multiple tourism products are housed within a single project and can include resorts, hotels, yacht marinas or other tourism products.
After several years of recognizing the product only at the level of subsidiary legislation, the law is finally getting updated to recognize long leases of villas.
However, it must be noted at the very outset that even if it may be called as villa sales in general parlance, the law speaks of a lease of a villa or room on a resort or property within an integrated tourism development. The lease will practically involve the long term grant of a right of use exclusive to the villa “buyer”.
The management of the villa will have to come to vest with the developer or owner of the project via a management agreement.
Some of these amendments are long awaited and very helpful. Some may upend current policies. Some may rewrite existing practices. Some may turn controversial. Some may just go unnoticed.
It may be helpful to have a quieter and deeper look at the various areas of the law this amending bill intends to touch upon. Such a review would educate us on the length and breadth of the changes anticipated by this new legislative intervention.