A picture of economic bleeding and administrative dysfunction is revealed by yesterday's Special Report of the Audit Office for the Department of Forests. At the center are five hotel units in Ayia Napa, which were erected on state forest land with contracts that refer to other times, leaving the state a spectator at a party of lost revenue, while tourism in the area is galloping.
In a message, the Auditor General, Andreas Papakonstantinou, states that long-term lease contracts for state forest land in Ayia Napa were examined, where serious delays in the revision of rents and legal issues arising from outdated contractual provisions were found. He emphasizes that the non-timely adjustment of rents entails a loss of revenue for the state.
It all started in 1970, 1981 and 1982. At that time, the Republic signed leases of state forest land lasting 99 years. For one unit, rent was defined as a percentage of receipts. However, for the remaining four, the rent was based on the market value of the land, with adjustments every five years based on approved sleep and food prices.
In 2019, the legislation changed with the abolition of the approval of sleep/food prices and created a legal vacuum. Therefore, the Department of Forests no longer had official data to calculate the increases. As a result for years, hotels have been paying rents based on prices of previous years on the basis of the old prices that were in force in 2017 – 2022, ignoring inflation and the skyrocketing tourist revenues. The non-adjustment of rents for more than three years, a period during which there was a significant increase in tourist activity and inflation, means that the state will receive revenues lower than those provided for in the contract.
The report of the Audit Office is a catapult, citing data that raise questions:
Unevenness: Hotel "C" (€80,991) pays almost double the rent of Hotel "A" (€41,192), despite the fact that they have a similar size and capacity.
Paradoxical figures: Units "B" (€139,737) and "D" (96,306), which manage the largest areas of forest land, pay the lowest rents per square meter (€3.40/sq.m. each, when "C" pays €7.38/sq.m.).
Hotel "E" paid an annual rent of €1,576,290 in 2018 and €2,505,319 in 2024. It is noted, however, that as far as unit "E" is concerned, the ratio of rent per bed and per sq.m., increased due to the annual change in the amount of rent (2017 – 2024), from €2,720 to €4,639 (70.55%) and from €12.40 to €21.16, (70.65%), respectively, as this is calculated on a different basis.
State aid: The Audit Office warns that rents are so much lower than market value that there is now a question of illegal state aid and distortion of competition.
At the same time, the Audit Office recommends that the Department of Forests proceed as soon as possible with the calculation of the market rent and then implement the suggestions of the Legal Service. The level of the new rent for all hotel units should be such that the disposal of state forest land is achieved in the most economical and efficient way. Also, the TD should be particularly careful in case of concluding new contracts, so that they are not unbalanced towards the Republic of Cyprus.
The Department of Forests raises its hands
The Department of Forests states that it agrees with the recommendations, but raises its hands regarding the modification of existing contracts. With the expirations of the contracts being placed in the distant 2047, 2048, and even in 2069, the management considers any unilateral change without the consent of the hoteliers impossible.
The Department of Forests sent a letter to the Department of Lands and Surveys along with spatial plans obtained by the Department of Town Planning and Housing, for the hotel units "A", "B" and "C" for the calculation of the rental value and determination of the market rent.
According to the above letter of the Department of Town Planning and Housing, for the hotels "B" and "E", the Department of Town Planning and Housing has not granted any Planning Permit to date and therefore the temporary director of the District Organization of Self-Government of Famagusta, as the competent Urban and Building Authority, will supply the Department of Forests with copies of the requested data from the files of the Organization, which are expected.
According to a letter from the Legal Service, dated 27/5/2025, any amendment to each contract requires the consent of both parties and must be in accordance with, among other things, the Contracts Law.
