Extending resort leases   

If you have a resort lease and your lease period is 50 years, you may want to consider extending the lease period to 99 years, within the next 2 years. Here is why.

A legal framework to enable a lease of a tourist resort (held by a private limited company) to run for 99 years was first introduced in the Maldives around a decade ago.

Since then, the law on extending resort leases to 100 years minus one has undergone serious and sustained metamorphosis. To date, the law has changed some 5 times within the last 10 years. That is a rule change every two years.

The most recent rule revision occurred with the Tenth Amendment to the Maldives Tourism Act in December 2020.

History of changes

Legislatively speaking, the concept of 99 years in respect of resort leases first happened in 2010 via the Second Amendment to the Tourism Act.

The legislative introduction was welcomed across the board as there was an acute lobby within the industry to secure 99-year tourism leases to increase the value of the property and mitigate the risk threshold of lenders.

The law did not automatically grant an addition of 49 years to existing leases of 50 years. Instead, it provided a framework for the leaseholder to choose the number of years it wants in extension over and above the 50 years. The charging mechanism was also pretty simple. US$100,000 per year extended. Payment method was even simpler. No need to pay outright. The law required the extension to be formalized with the ministry of tourism within 18 months from the date of the law, but the payment was neither due immediately on extension nor in one payment.

The law enabled payment to be made in yearly installments. In fact, the law said, you pay only for each year of extension only in that (extended) year.

This legal position did not survive for long. After four years, the law was revised in 2014 via the Fourth Amendment.

The manner of payment of the extension fee (that was payable at the rate of US$100,000 for each year extended – and in that extended year only) was repealed and replaced with a new rule.

According to the new legal position, the payment had to be made within a maximum of 24 months from the date of the law. It also prescribed that the full payment had to be made in quarterly installments spread across those 24 months. The new law also made it clear that if payment was not made within the 24 month window, the extension already granted in pursuance of the Second Amendment of 2010 would be nullified.

This had the adverse effect of bringing forward a payment obligation that was set by law to happen many years later. This new position also repealed and recreated a payment method on which many had already acted on by signing agreements with the ministry of tourism. Many objected to this retrospective application of the law and many more detested the idea of an unwelcome law bulldozing agreements already executed in pursuance of a valid piece of law years earlier.

Not many had the courage to take the government or the ministry of tourism to court and contest the validity of this law, as much of their interests in approvals or permits and licenses required for maintaining their lease agreements or resort properties vested with the same ministry. Hence, life had to proceed without much incident.

The law did not hold for long. It had to be reversed again in 2015 via the Seventh Amendment.

This time the law was more direct. An extension of 49 years may be given on condition that US$5m is paid in one lump sum payment in addition to meeting some other qualifications. The additional criteria included settlement of all rental fees, fines and taxes owing to the government, including any such fees and fines that may have been deferred under an agreement with the ministry of tourism. The law also required the property to be operational.

The law suffered the same fate as that of previous amendments. The law had to be reversed within a year via the Eighth Amendment.

If any resort wanted an extension of the lease period, the new law required full payment of the extension fee to be settled by the end of December 2017. The law threatened to invalidate any addendum that may have been signed with the ministry of tourism to extend the lease based on a future payment schedule.

The law also made a slight distinction between payments due and owing and payments accrued but deferred –  in the sense –  if any lease rental or fines were deferred under an addendum with the ministry of tourism, they would not be included within the list of payments to be settled outright in order to secure a lease extension. In short, the rule made it compulsory to pay all fees fines and taxes that were not otherwise deferred.

Current scenario

Just three years on, the policy was negated again by the most recent and the fifth rule change to happen via the Tenth Amendment.

The detailed mechanics of this rule (as amended) are found in the Tourism Act (Tenth Amendment) Act of 27 December 2020.

Three essential elements of the new legal position can be summarized as follows:

Firstly, in order to request for an addition to the existing lease period, the resort property would have to be operational.

Secondly, the applicant should not have any unpaid rent, fines or taxes. If any of the payments were deferred by the ministry of tourism by virtue of an addendum to the lease agreement, they would be excluded from being bitten by this second limb.

Thirdly, the applicant should be ready to pay US$5m as a lump sum payment to confirm the addition. However, there is a catch here. The US$5m is applicable only if the extension is secured within 2 years of the law. That means the provision is a sunset provision, and the opportunity would be lost after 26 December 2023.

The same extension would thereafter attract an extension fee of US$10m.

While existing resorts may not feel the pinch so acutely, and probably can arrange to pay US$5m within 2 years, those that are under development would now have to race against time to complete the development of their properties and make them operational so as to qualify within the scope of this sunset provision – and secure a lease extension for US$5m.

That is the current position of the law.

Way forward

If you have not had the lease extended already, you may want to attend to this matter as early as may be practicable.

With a track record of one amendment every two years, and five out of ten amendments so far brought to the tourism law touching on this single rule, none can be so certain if the law on 49 years may not again be revised or repealed.

If you are inclined to proceeding with the extension of your resort lease within the next two years, you may begin the process by sending in a written request to MOT expressing your interest. There is no statutory form or prescribed format. A simple letter would perhaps be sufficient to initiate the process.



Courtesy S