You have identified a resort property that you would like to manage in the Maldives. You have concluded your negotiations on a hotel management agreement with the owner of the property. You are about to ink the deal.
At this juncture, you may want to ensure completion of a few regulatory steps to formalize your entry into the Maldives as a hotel operator.
The Tourism Act, Island Lease Agreement and Grant of Rights Rules all allow management rights to be granted in respect of a resort.
The Tourism Act does not contain any specific section enabling the grant of management rights of a resort to a third party – a hotel operator.
However, section 6 of the Act says that islands to be developed as tourist resorts should be leased under an Island Lease Agreement signed between the government and the lessee. The section goes onto enumerate certain constituent elements to be present in the Island Lease Agreement. One of those elements is the manner in which grant of management rights to a third party would be dealt with. This provision is often cited to pinpoint at the legal roots for granting management rights to a hotel operator.
Generally, the Island Lease Agreement, signed under the authority of the Act, would carry a provision on the subject. The scope is often captured in a clause called ‘grant of rights and interests’. Among other transactions and dealings authorized by the provision, the clause allows a lessee to grant management rights of a property to a third party subject to written approval of the lessor (government represented by the ministry of tourism). The approval may be subject to conditions. In practice, these conditions are primarily reflected in the regulatory process discussed below.
The regulatory process on the grant of management rights is outlined in a set of regulations often cited amongst industry actors as the “Grant of Rights Rules” enforced by the ministry of tourism.
Firstly, the owner of the property has to approach the ministry of tourism for its prior approval to grant management rights to a third party.
Unlike in a sublease exercise, there is no prescribed form or payment of fees. An application is made by sending in a request letter along with a draft of the management agreement.
Although the Island Lease Agreement refers to obtaining “prior approval” the ministry of tourism completes this requirement in practice by issuing a letter of “no-objection”.
In granting its no-objection, the ministry of tourism does a quick check of a few matters: management period, mechanism to pay management fees, restriction on further grant of management rights, existence of any conflict between management agreement and the Island Lease Agreement, and resolution of any such discrepancy in favor of the latter.
It is also during this stage of review that the ministry of tourism will verify if the operating period of the management agreement is within the lease period if it is granted by a lessee, and within the sublease period if it is granted by a sub-lessee.
While the management agreement may allow for the novation of rights and interests available to the operator to a third party, the ministry would confirm if the agreement prohibits further grant of management rights to a party.
Secondly, the parties may sign the management agreement on receipt of the ministry’s no-objection.
If the management agreement is signed without the prerequisite no-objection, the owner of the property could suffer a penalty: a fine of US$4,000.00.
Thirdly, if it is the first project in the Maldives, a foreign operator will be required to register a local vehicle to assume the management agreement and perform it in the Maldives. It can be achieved via the creation of a new company or re-registration of a company existing elsewhere. This process would also require the foreign investor to obtain a foreign investment approval. Both these processes are completed in parallel.
If it is a subsequent project, the foreign investment approval may need to be expanded to cover the new project.
Fourthly, after inking the agreement, registration of the management agreement will follow. It is registered with the ministry of tourism. Getting their no-objection to sign before execution and registering the agreement post execution are treated as two separate processes.
Again, there is no prescribed form or payment of fees. A request is made in the form of a request letter. The request should accompany the executed version of the management agreement. A copy would suffice.
There is no certificate of registration. The ministry would recognize the grant of management rights, update its records on the property, and issue a letter to the owner confirming registration of the management agreement.
As can be seen from the above, the process of formalizing the entry of a foreign hotel operator into the Maldives to take over the management of a resort is not a very burdensome process. If there are no complications, and all factors remain unchanged, the process can be achieved pretty quickly within few short steps.