The Auditor General’s Office has gazetted a new regulation outlining the procedures for compensating lessees when tourist resorts are reclaimed by the state upon the expiry of their lease terms or at the government's discretion.
This regulation was formulated under Section 8 of the Tourism Act, which governs the handover of resorts to the government following the termination or expiry of lease agreements. Subsection (b) of the Act mandates that compensation for reclaimed islands must be determined in accordance with this framework.
Under the newly established guidelines, compensation is payable only if a resort is reclaimed due to the expiration of the lease period or if the state requires the land for public purposes. The regulation states that no compensation will be provided if a resort is seized by the state due to a breach of the lease agreement.
When determining compensation, assets located on both operational resorts and those that have ceased operations are eligible. However, such compensation is calculated only after deducting depreciation. The categories of assets eligible for compensation include:
- Movable and immovable property directly related to providing tourist services that are included in the inventory list maintained under the resort’s lease agreement.
- In cases where a formal inventory has not been maintained, movable and immovable property directly related to tourist services included in an inventory list prepared for depreciation assessment.
- Any assets not included in an inventory that the previous operator has left behind and which the Ministry of Tourism wishes to retain.
The regulation stipulates that no compensation will be paid for assets that are unusable due to wear and tear or those that cannot be restored through repair, even after depreciation is calculated. Furthermore, items that can be repaired but require costs exceeding 30 percent of their estimated value to become functional are excluded from the compensation package.
Additionally, assets that have exceeded their useful lifespan, outdated models, and structures built in violation of approved architectural drawings are ineligible for compensation. No compensation will be provided for items that the former operators wish to remove, provided such removal does not disrupt the future operations of the resort.
Former lessees retain the right to sell or remove any items not required by the ministry or those excluded from the official and depreciation inventories. A 90-day period is granted to complete this process.
If such items are not removed within the timeframe, the ministry of reserves the right to include them in the depreciation inventory or sell them at auction. However, the proceeds from such sales must be returned to the former lessee, with the ministry only deducting the administrative costs incurred during the sale.
In calculating the depreciated value, auditors must consider the original acquisition or construction costs, any asset revaluations, information recorded in financial statements, and whether the depreciation rates used align with industry standards. The Auditor General’s Office will appoint the auditor responsible for these valuations.
The Ministry of Tourism is authorized to release funds only after the final compensation amount has been determined and certified by the Auditor General’s Office.
To date, there have been no public records of the Maldivian government paying compensation to any resort due to the expiration of a lease term.
