Proposal for Reduced Lease Rent

On 20 July 2020, the government announced its intention to propose a lease rent reduction for tourism properties in some distant atolls.The proposal is represented graphically in the caption.The law before 2010The Maldives Tourism Act is 21 years old. It was enacted as Law Number 2/99 and brought into effect on 16 May 1999.For the first 11 years of the Act, the tourism lease rent was not legislated by the Act. It was proposed by the bidder. As much as 60% of the bid evaluation hinged on the lease rent component. This effectively made the bidder with the highest (not necessarily the best) rent proposal the most likely winner of the bid with rest of the 40% of the bid points distributed over concept and development, environmental considerations, human resource development and the like.One consistent complaint over this practice of self-proposing the lease rent was that it defeated qualified and able developers from winning the island on a commercially feasible and reasonably sustainable rent model. The rule also bred the unhealthy practice of bid winners transferring the islands later on to more competent players for a good ‘cut’ post award. Of course, there were also those who put in multiple bids with varying rent proposals to increase the likelihood of a win.Second AmendmentThe practice was completely repealed and replaced with the second amendment to the tourism law. That was the Tourism (Second Amendment) Act of 2010 that was enacted as Law Number: 20/10 and given effect on 8 September 2010.The amendment effectively introduced a new rent model, set the lease rent at $8 per square meter, tied the total rent payable to the extent of land area, and divided tourism land into three broad bands.Generally, a resort island with a land area below 200,000 square meters will attract lease rent at the amount of land area in square meters multiplied by US$8 with a cap of US$1m; a property with a land area between 200,000 to 400,000 square meters would levy a fixed lease rent of US$1.5m; and a tourism property with a land area in excess of 400,000 square meters would have its lease rent set at US$2m.The rule applied across the country to all tourism properties alike, large or small, past or present properties. Those properties acquired on the previous bid model also had to transition to the new rent regime.Over the past 10 years of the life of this current model, tourism actors and thought leaders had often participated in arguments both for and against the uniform lease rent model. The debates had been largely seasonal – in the sense - some incident would ignite the debate and a while later the intensity would dissipate without yielding concrete results, only to re-emerge on the occurrence of another trigger.The main argument against the rule lies in this reality.Tourism properties are mostly congested within the central zone (comprising of Male atoll, immediate neighbor atolls and those that are largely located towards the center of the country). They benefit greatly from their obvious proximity to the country’s main international gateway – Velana International Airport. It naturally reduces cost of travel and transportation, cuts waiting time, affords a more hassle free experience to the visiting traveler.On the other hand, resorts operating in far flung atolls have often encountered wasted hours of transit, inconvenience of switching between various modes of transport, increased costs of travel and transportation, inclement weather conditions, bad poor or missed connections – all contributing to an expensive and unpleasant holiday experience.Even from the view point of owners and operators, the cost is unnecessarily enlarged because of those factors. Therefore, paying a uniform rent by those in the privileged Male zone and the not-so-privileged other zones was just not tenable.Whenever the debate intensified, discussions would happen within the corridors of power, proposals would be circulated, men and women of importance would discuss, and in no time, either the focus would shift or the issue would be overridden by other more compelling matters.New ProposalWhile many intervening governments have attempted to respond to the matter and crafted proposals to revise the rent regime or offer rent rebates for extreme north or south of the country, this is the first time a government has made its intention public and shared the constituent elements of the proposal.According to the new proposal, the following atolls will have their tourist rent rates positively affected:North Haa Alif and Haa Dhaalu atoll – US$4 per sqm with a cap of US$1mShaviyani - US$6 per sqm with a cap of US$1.5mSouth Addu Atoll, Fuah Mulah – US$2 per sqm with a cap of US$800,000Gaafu Alifu, Gaafu Dhaalu, Thaa, Laamu – US$6 per sqm with a cap of US$1.5mThe ConclusionSince the rent is fixed by law, any change to the land rent model may only be sanctioned by an amending law. It is also relevant to note that the standing orders of the Maldives parliament do not allow money bills or bills with adverse financial implications to the treasury to be proposed by a political party or a private member.Therefore, a change “that has potential financial consequences” to the government may only be initiated in parliament by legislative action initiated by the government.