The Ministry of Tourism (“MoT”) has on 5th September 2023 introduced the first ever regulation solely governing the various aspects of tourism strata leases granted on tourist resorts and integrated tourist resorts. The ‘Regulation on the Long-Term Strata Leasing of Villas or Rooms’ (Regulation No: R-154/2023) (“Regulation”), is issued by MoT pursuant to Sections 16-7 (b) of the ‘Maldives Tourism Act’ (Law No: 2/99) under the authority granted by Section 52 of the said Act. This Regulation came into force on 5th September 2023 and its rules are to prevail against any other regulation prescribing similar rules to govern the leasing of villas and rooms in tourist resorts on a strata basis.
Prior to this Regulation, the leasing of villas and rooms on strata basis was governed under the ‘Regulation on the Grant of Rights of Tourist Resorts’ (Regulation No: R-14/2010). The new Regulation requires currently leased strata villas or rooms to be registered in accordance with the registration rules prescribed within a period of 1 year from the date the Regulation has come into force, that is by 4th September 2024.
Property Types
The types of properties which would qualify for a strata lease under the Regulation include villas, rooms, or a room or apartment located in a separate building within a tourist resort, or an integrated tourist resort (“Strata Property”). A villa is required to be physically separate from the resort’s infrastructure with its own means of access, entry and exit ways, containing more than 1 bedroom and catering to 1 family or group. Similarly, a room is to be physically separate from the resort’s infrastructure with its own means of access, entry and exit ways. A room located within a separate building is classified for the purposes of this Regulation as 1 bedroom located within a building with 1 or more floors containing a minimum of 2 units. Whereas an apartment classified under this Regulation is a place containing more than 1 bedroom located within a building with 1 or more floors containing a minimum of 2 units. The Regulation also prescribes for certain standards and conditions to be met by these categories of Strata Properties.
The Regulation allows the leasing of Strata Properties inclusive of a demarcated boundary area for the private use of the strata lessee provided it does not interfere with the provision of services to tourists within the resort itself. Additionally, the Regulations do not hinder the entering into a lease transaction of a Strata Property located within a tourism island under development so long as such lease is in accordance with the prescribed rules.
Lease Benefits
Parties who may grant the lease of a Strata Property include the leaseholder (head or sublease) of a tourism island, a developer of an integrated tourist resort, or the leaseholder of a tourist resort located within an integrated tourist resort. Whereas parties who may take on the lease of a Strata Property include an individual of 18 years of age or above or a company or partnership registered in the Maldives.
The Regulation guarantees minimum rights to lessees of Strata Properties as reflected in the strata lease agreements itself. These rights are:
- Right of access, entry and exit to the tourist resort on which the Strata Property is located within;
- Right to quiet enjoyment and usage of the Strata Property;
- Right to mortgage the Strata Property;
- Right to sublease the Strata Property; and
- Right to usage of utility services provided at the tourist resort.
Lease and Management Agreements
The Regulation requires the Strata Property lessor and lessee to enter into a lease agreement to govern aspects of the long-term lease arrangement between both parties. The duration of this long-term lease must not exceed the duration of the resorts lease granted by the government and the terms of the lease agreement must not contradict with any term of the resorts lease granted by the government. The Regulation prescribes certain terms to be contained in the lease agreement.
In addition, the lessor and lessee are required to enter into a management agreement to govern aspects of the management and maintenance of the Strata Property and the agreed business model to operate the property when it is not being occupied by the lessee. The management agreement will remain valid for the duration of the lease agreement. Specific terms to be addressed in the management agreement are prescribed in the Regulation.
Regulatory Processes and Applicable Taxes
The Strata Property to be leased is to be registered with MoT prior to its leasing to a third party. The application process requires parties to file the prescribed application form to MoT along with accompanying supporting documents. The supporting documents are prescribed under the Regulation and include but are not limited to, documents to verify the identity of the lessee, site plan demarcating the boundary of the Strata Property’s location, a letter of no-objection issued by the resort’s mortgagee or sublessor (where applicable) and copies of the lease agreement and management agreement governing the strata lease arrangement between the parties. A fee of MVR 5000.00 is payable to the Maldives Inland Revenue Authority for registration of the Strata Property. On fulfilment of the registration requirements, MoT will issue a Strata Property registration certificate confirming due registration of the long-term strata lease.
The Regulation prescribes Goods and Services Taxes (“GST”) in accordance with the ‘Goods and Services Tax Act’ (Law No: 10/2011) is to be levied on the strata sale transaction. Additionally, where a tourist stays on a Strata Property at any given time, TGST, Green Tax, and any other tourism related taxes which may be introduced by the government are to be levied.
Penalties for Non-Compliance
The Regulation grants MoT the authority to impose financial penalties for non-compliance of the prescribed rules.
A lessor who leases a Strata Property without adhering to the prescribed procedures for its leasing may incur the following fines:
- MVR 25,000.00 (equivalent to US$ 1621.27) for non-compliance in the first instance;
- MVR 50,000.00 (equivalent to US$ 3,242.54) for non-compliance in the second instance; and
- MVR 100,000.00 (equivalent to US4$ 6,485.08) for non-compliance in excess of the second instance.
A lessee who fails to comply with the prescribed rules may incur the following fines:
- MVR 10,000.00 (equivalent to US$ 648.51) for non-compliance in the first instance;
- MVR 50,000.00 (equivalent to US$ 1945.53) for non-compliance in the second instance; and
- MVR 50,000.00 (equivalent to US$ 3,242.54) for non-compliance in excess of the second instance.
