AAI, Leela spar over land lease terms

New Delhi: Serious differences have cropped up between Hotel Leelaventure and the Airports Authority of India (AAI) over the terms for renewal of the lease agreement of the land where the company's marquee Hotel Leela is situated, near the Mumbai international airport.
Part of the hotel is built on land on a long-term lease from the airport authority. Nearly 65 per cent land on which the hotel is built is leased out by AAI. The lease agreement expires in July 2012. Negotiations are on for a renewed term of 30 years, extendable by another 30 years subject to satisfactory performance.
Under the terms fixed by AAI, the airport authority has demanded the listed company Hotel Leelaventure fork out 7.5 per cent of the gross turnover of the hotel as royalty in the form of revenue share. Leela has contested this, saying the revenue share should be brought down to 5.33 per cent. The hotel company argues the royalty payment of 7.5 per cent should be reduced to the extent of the percentage of land contributed by AAI to the hotel area.
Second, AAI has said the company must pay an escalation cost while the current lease rental is Rs 1,630, the price of the land would escalate by 7.5 per cent when the contract is renewed. That means Leela would have to shell out a total rental of Rs 1,752 a sq metre i.e. pay Rs 4.15 crore every year. That again is not acceptable to the company.
Third, AAI has contended the company must fork out the rental fixed at Rs 1,630 a sq metre on the entire built-up area, not the land area (which is lower). Leela contends the rental should be paid on the land area and not the actual built-up area.
27/09/11 Surajeet Das Gupta & Mihir Mishra/Business Standard

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Categories: airports Sep 2011