COVID Extension for Resort Construction Periods

Many a developer involved in the construction of Maldives resort properties recently suffered project delays due to COVID-related lockdowns, shutdowns, and interruptions.

More often than not, the construction and development of a tourist resort happen with a combination of certain key factors: money, resources, and time. Any unwelcome time lags in a construction project of a resort can affect the developer in many ways. It may result in a breach of the construction permit, increased project costs, deterioration in workmanship, claims for compensation, renewal of permits – all having a degree of the financial overlay.

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It is not disputed that a COVID-style lockdown like the one we experienced recently would have resulted in cost increases as regards labor material and equipment directly contributing to expanded field overheads. It would have affected the ability to mobilize adequate manpower due to glitches in submitting documentation, seeking timely approvals, and transporting them. It would have affected the timely import of materials, clearance, and transportation of goods to locations due to interruption caused to supply chains. It would have caused a series of concurrent delays where one component when held up has a cascade effect on the rest of the components of the project.

Some of these developers who were affected by the lockdown communicated their concerns to the ministry of tourism. As a matter of relief, they requested that the construction period be extended to accommodate lost time.

The government seems to have appreciated their concerns in an amendment it brought out on 22 June 2020 to the Construction Period Extension Regulations.

The amendment enabled developers to apply for an extension of the construction period by an amount commensurate to time lost due to restrictions imposed or suffered pursuant to the public health emergency in effect since March 2020.

According to this recent policy intervention, the developer in applying for relief should describe the delays encountered by the project due to restrictions imposed; define the period lost from the construction period, and provide documentation to support the claim.

On review of the application, if the ministry of tourism is convinced that delays did occur to the project and those delays are attributed to actions taken pursuant to the emergency (including lockdowns and shutdowns), the period lost from the construction period would be reimbursed in the form of an extension to the construction period. This extension will not attract a fee payment.

It may be noted that the construction period extensions provided in exchange for COVID-related disruptions would only entitle the developer for a commensurate extension of the construction period to accommodate time lags. This extension will not change the total lease period of the property.

The relief provided by this policy is limited to two things: the fact of reimbursement of time lost from the construction period, and this extension being granted without a fee.

This new rule is significant for a key reason: the lease agreement ordinarily provides the first 36 months of the tourism lease as a rent-free period to develop the resort property. This is the three-year construction period. Often times, the development of the property is not completed during that construction period for a host of reasons including insufficient or lack of funding, variations, changes to design drawings, and all sorts of other delays attributed to the supply chain. In these circumstances, an extension is invariably sought.

Extensions are generally granted to the construction period on application and payment of a prescribed fee. The fee is calculated at a base rate, charged on a per month basis, and prescribed in the regulations. The fee is applicable for each month of extensions added to the construction period.  In consideration of this fact, the lease rent that would otherwise be levied from the end of the initial 36-month construction period (and applicable even during extensions) is deferred to be paid at a later date.

The key takeaway from this recent amendment is that qualifying applicants would be able to gain at least one to three months of extension to their current construction period, without the need for payment of an otherwise payable monthly fee.

Derived from: Nasheed & Co

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