The Audit Office finds a distortion in the tourism industry in its special report on five cases of leasing state forest land for the construction of hotels in Ayia Napa, noting that the terms of the leases, as in force today, do not guarantee the disposal of state forest land in these cases. , in the most economical and efficient way.
"All hotel units pay rents that are significantly lower than those that would be paid based on current data," he said.
Among other things, the Audit Office refers to the fact that very long-term agreements between the state and private entities, especially when they include clauses that make it impossible to modify them without the consent of the lessee, trap the Republic in unprofitable solutions, which do not serve the public. notes that in such cases an open, transparent and competitive procedure should be followed, and that ways of calculating rents that enable landlords to methodize the amount of rent should not be adopted.
The report concerns the conclusion by the Republic of Cyprus in the years 1970, 1981 and 1982, of five lease agreements of state forest land, lasting 99 years, for the construction of an equal number of hotel units (A, B, C, D and E), in Agia Napa and the subsequent handling by the state (Department of Forests) of these agreements.
"Taking into account that 48 years have passed since the date of conclusion of the said state forest land lease contracts, as well as the fact that one of them has been subletted, while another was previously subletted for a period of about ten years, as this is allowed by the "The contracts for which the four of them were concluded as an incentive to reactivate displaced hoteliers may not exist, at least to the same degree," the report said.
According to the Audit Office, " the earth with today's data ".
Specifically, the report continues, "we proceeded to the calculation of the rent, which would be paid on the basis of a percentage of 5% on the value of the property, as defined in the Real Estate Regulations of the Republic (Disposal) Regulations of 1989, according to the market value on 22.9.2020 .XNUMX, which, according to the Department of Lands and Surveys (TKX), concerns a plot value based on their existing use and not their urban area ".
"From this calculation and its comparison with the annual rents paid, very significant differences emerged, amounting to up to € 5.043.071, which is problematic," it is noted.
It turned out that in all four cases the landlords are able to influence the amount of rents, based on the prices of accommodation and food declared to the Cyprus Tourism Organization (CTO), to the extent that the amount of rent is marginally close to the amount of rent, as it would be calculated on the basis of the general price index ", it is added.
Characteristically, it is noted, "we report that the annual rent of hotel unit C, as calculated on the basis of revised prices of bed and food, today amounts to € 139.737 (from € 311.914) and is by € 172.177 lower than that of the previous period, ie noted reduction of 55%, in a period of significantly increased performance in the tourism industry of Cyprus ".
In addition, it was observed that "for the calculation of the average price of sleep and food per day per person, the TD took into account the average price for the double room, according to the data submitted by the CTO".
According to the Audit Office, “this price would vary significantly upwards if the average price for a single room were taken into account. Therefore, there may be an issue of incorrect application of the provisions of the contract, to the benefit of the landlords ".
"Since the export of comparable data between hotel units B, C, D and E, the rent has increased over time in the case of hotel unit D, which is the only one that is characterized as three stars and has the highest rental price per sq.m. ", while the hotel units C and E, which are characterized as four stars, pay the lowest rents per sq.m.", it is reported.
Indicates that the Superintendent of State Aid Control (EEKE), in a letter dated 6.6.2018, to the Department of Lands and Surveys, pointed out the need to examine whether the current rents and user fees for state real estate used for tourist purposes, correspond to market rents.
"We also pointed out that, according to the Real Estate (Ownership, Registration and Valuation) (Amendment) (No. 4) Law no. 83 (I) / 2010), "if the property will be used for the construction of main tourist facilities, the rent amounts to 5% per year on the value of the property" ".
Considering the fact that modification of the terms of the contracts in question requires the consent of both parties and that in all probability the said hotel units would not accept a rent adjustment on the basis of market value, as this would imply "We would expect the TD to consider the possibility of terminating these contracts before renewing them for another 33 years, on the same terms, which, as it turned out, are unprofitable for the Republic."
In conclusion, it is noted, "we recognize the legal obstacles that may make it very difficult, if not impossible, to adjust rents to market values, but it is still clear that the terms of the leases, as they apply today, do not guarantee the availability of state forest land, in these cases, in the most economical and efficient way ".
The Audit Office considers that "the direct lease of state land to specific natural or legal persons, in particular for commercial purposes (such as the lease of state forest land for the construction of hotels and the recent lease of state and state forest land for the construction of photovoltaic parks). private university and livestock unit) in no way satisfies the principles of transparency, equal treatment and non-discrimination. "
According to the Audit Office, "the way the state forest land is managed should ensure that the principles of good administration, transparency and equal treatment are observed, in order to safeguard the public interest".
This, it is noted, "requires that, especially in cases of land that will be allocated for large developments (eg hotels, industrial units, universities, etc.), an open, transparent and competitive process is followed, in order to ensure its disposal with in the most economical, efficient and effective way ".
"In any case, the allocation of state land should be done transparently", it is mentioned and proposed that for the calculation of the minimum acceptable rent, the method defined in Law 83 (I) / 2010 is used (ie, in the case 5% of the market value of the land) provided that it will be modified accordingly.
"Very long-term agreements between the State and private entities, especially when they include clauses that make it impossible to modify them without the consent of the lessee, trap the Republic in unprofitable solutions, which do not serve the public interest. Also, the initial reasons may become obsolete in the process ", it is added to the conclusions of the Audit Office.
The position is also expressed that "in general, the duration of a lease agreement should be proportional to the investment, in order to provide sufficient amortization time, but not longer".
It is noted that "ways of calculating rents should not be adopted, which allow landlords to methodize the amount of rent."
The Audit Office acknowledges that "although legal hurdles may make it very difficult, if not impossible, to adjust rents to market values, of state forest land, in these cases, in the most economical and efficient way ".
Source: KYPE