Termination of Tourism Leases for Failure to Develop under Regulation No: 2026/R-80

Introduction

Tourism lease agreements require the lessee to develop the leased island, land or lagoon and open it for operation within a grace period. The Regulation on the Granting of Extensions for Completion of Development of Tourism Development Projects and Properties Closed for Redevelopment, and the Deferment of Lease Rent and Fines (Regulation No: 2026/R-80), published in the Government Gazette on 10 September 2026, sets out when the ministry may, or must, terminate the lease of a property that has not been developed.(1) The regulation came into force on the date of its publication (Section 19).

The regulation deals with termination in two ways. Section 17 sets special procedures for properties that have remained undeveloped for a long period. Other provisions give the ministry discretion to terminate where a lessee fails to meet the conditions of an extension or of a redevelopment period.

Special procedures for long-standing undeveloped properties

Section 17(a) applies notwithstanding any other provision of the regulation. It covers two groups of lessees:

• lessees who were granted an extension of the construction period before the regulation came into force, under Regulation No: 2022/R-236 or any other relevant regulation; and
• lessees whose grace period has expired but who have not been granted an extension under any relevant regulation.

For these properties, Section 17(a) sets out five rules. They are summarised in the table below.

Section 17(a): categories and consequences

Category of property	Consequence	Provision
Eight years have passed from the period given for development and rent and fines owed to the State exceed USD 10 million; and properties on which no physical development work has been carried out	Lease terminated under its terms, without a further opportunity	Section 17(a)(1)
Construction period extended by more than 60 months after the grace period; eight years of the lease term have passed; or less than 15 per cent of the development work has been completed	Lease terminated under its terms, without a further opportunity	Section 17(a)(2)
Grace period expired without an extension, and eight years of the lease term have not passed	One opportunity to extend the construction period; lease terminated if the property is not developed and opened within that period	Section 17(a)(3)
Lease has run for eight years and development is not complete, but a construction period remains and work is continuing	Ministry may take action consistent with the lease if work is not progressing at a reasonable pace or has stopped	Section 17(a)(4)
A property within Section 17(a)(4) on which 50 per cent of the development work has been completed	Ministry may extend the period, based on a declaration from the lessee and the ministry's verification	Section 17(a)(5)

Mandatory termination under Section 17(a)(1) and (2)

Section 17(a)(1) and (2) do not give the ministry a discretion. They provide that the leases of the properties described are to be terminated in accordance with the terms of the lease agreements, without any further opportunity to develop.

The single further opportunity and ongoing projects

Under Section 17(a)(3), a property whose grace period has expired without an extension, and whose lease has not yet run for eight years, is given one opportunity to extend the construction period after the regulation came into force. If the property is not developed and opened for operation within the extended period, the lease is terminated.

Section 17(a)(4) deals with properties where the lease has run for eight years and development is not complete, but a construction period remains and work is continuing. The ministry will assess the progress of the work. If the work is not progressing at a reasonable pace, or has stopped, the ministry may take action in a manner consistent with the lease agreement.

Where 50 per cent of the development work on such a property has been completed, the ministry may extend the period on the basis of a declaration by the lessee and after verifying the property (Section 17(a)(5)).

Other grounds of termination under the regulation

The regulation further gives the ministry discretion to terminate a lease in the following circumstances:

• Section 4(c): where the USD 100,000 fee and the CSR contribution are not paid within 30 days of conditional approval of an extension or redevelopment. The conditional approval is cancelled and the ministry may take action under the lease, including termination;
• Section 5(e): where less than 50 per cent of the development work has been completed when the maximum extension of the construction period expires;
• Section 14(b): where the property is not opened within the extended construction period or redevelopment period, and the accrued and deferred rent and fines are not paid to the State within 24 months; and
• Section 10(n): where a property closed for redevelopment is not reopened after the 30-day notice and any further period granted under Section 10(l).

The ministry may also take action under Section 12(a) and 10(j) of the lease agreement where the lessee does not submit the work plan or the outstanding documents required under Section 12, or where an operating property closes without approval.

In each of these cases, termination is at the ministry's discretion. It is not automatic, in contrast to Section 17(a)(1) and (2).

Termination in accordance with the lease

Section 17(a)(1) and (2) provide that leases are to be terminated in the manner set out in the lease agreements. The regulation does not replace the termination procedure in each lease. The ministry must therefore still follow the procedure stated in the lease agreement, including any notice requirements.

Mortgaged properties

Where a property within Section 17(a) is mortgaged, or a court has authorised the sale of the island because the mortgage has not been paid, Section 17(b) requires the ministry to notify the mortgagee before terminating the lease. The regulation requires notice only. It does not give the mortgagee a right to remedy the default or to take over the lease. Any such rights depend on the lease agreement and the terms and conditions of the mortgage.

No compensation and continuing liability

Section 16(a)(1) requires every lease amendment granting an extension or a redevelopment period to state that the ministry may terminate the lease if the development is not completed within the maximum period, and that the government is not required to pay compensation in that event.

Section 10(n) states the same for redevelopment. A lessee who signs an amendment under the regulation therefore agrees that termination for failure to complete will not give rise to compensation from the government.

Termination does not release the lessee from its debts. Where a lease is terminated under Section 17(a), the lessee must still pay to the State the rent and fines accrued in respect of the property under Section 17(c).

Comment

Section 17 is a clear change of approach. Earlier regulations focused on granting further time to undeveloped properties. The new regulation identifies categories of long-standing undeveloped properties whose leases are to be terminated without a further opportunity, and it limits other undeveloped properties to a single further extension.

Lessees of long-standing undeveloped properties, and banks holding mortgages over them, should assess their position under the new regulations. Where a lease is at risk, the lessee should consider whether it qualifies for the single opportunity under Section 17(a)(3) or the 50 per cent route under Section 17(a)(5), and ensure that the required documents and payments can be made within the time limits.

Termination also leaves the lessee liable for all accrued rent and fines. For long-standing projects these amounts can be substantial, and they remain payable to the State after the lease has ended.

This article reflects the law as of 29 October 2026.

Endnotes

(1) Government Gazette, Volume 55, Issue 145, 10 September 2026.

For more information, please contact:

Mr. Ahmed Murad, Senior Partner

Email: [email protected]