On the 29th of July 2022, a new legal notice entered into force which brings about certain important changes to the Commercialisation of Sports Facilities Regulations (the “Regulations”). The Regulations, which came into force in 2017, created a legal framework that enables sports organisations to operate commercial activities on their premises.
The new amendments seek to provide further clarity with respect to (i) the application process that is required to be followed for sports organisations to be able to carry out commercial activities in their sports facilities and (ii) the determination of the annual ground rent payable. The changes also aim at increasing transparency by allowing a sports organisation to enter into a contract with a third-party operator for the development or management of the commercial activity within the sports facility, only after it has published a public request for proposals.
Defining Relevant Activities
The amendments distinguish between three main activities that sports organisations may undertake; namely sports activities, commercial activities, and sports ancillary activities. In general, an activity is an act by a sports organisation that constitutes the construction or operation of a facility, be it strictly sports-related or more commercially oriented.
Sports activities relate to areas designated specifically for the practicing of sports, and include the construction and operation of pitches, courts, swimming pools and gymnasiums.
A commercial activity may only be carried out by a sports organisation if authorised by the Commercial Sports Facilities Commission (the “Commission”) or in certain limited cases by SportMalta. Commercial activities may include retail offices, units, shopping malls, supermarkets, catering establishments and other activities as approved by the Commission.
The amendments also newly define a sports ancillary activity as the construction and operation of buildings that have certain sporting objectives. These include spectator stands, dressing rooms, warm-up areas, clubhouses, spas, and personal care centres.
The terms ‘sports activity' and ‘sports ancillary activity' were introduced into the Regulations for the purpose of calculating the annual ground rent payable by the sports organisation in respect of the emphyteutical concession.
The Commission's Legal Status
The amendments have granted the Commission the status of a legal person. This change is significant because legal personality endows an entity with the capacity to enter into agreements on its own behalf. By having this capacity, the Commission can act on its own account and in its own name.
The application process for a sports organisation to be granted a permit to commercialise a sports facility has also been tweaked by these amendments. The updated Regulations take into consideration the scale of the commercial activity, and differentiate which entity is to grant a permit accordingly.
Applications are to be submitted to SportMalta if the commercial activity does not exceed a total floorspace of two hundred square metres (200 sqm). In such case, the Commission must first be notified by the sports organisation and must also grant clearance for the application to be processed by SportMalta. Where the total floorspace exceeds this scale, applications are to be made directly to the Commission.
An application to SportMalta or the Commission is to include certain details such as the applicant's details, a signed declaration regarding legal presentation, an explanation of the proposed commercial activity, and an architect's plan of the sports facility.
The Commission shall ensure that the application is complete upon receiving it and is to submit a copy to the Lands Authority for a valuation of the property. Once the valuation is prepared, the Commission will request the sports organisation to submit a detailed business plan, an authenticated copy of any contract made with a third-party operator and any documents proving that persons who entered into a development and management agreement with the sports organisation satisfy the requirements of the Regulations.
Once the Commission receives this documentation, it will appoint a Technical Committee to prepare a final report. The Commission, if satisfied with the report, will issue a certificate permitting the commercialisation of a sports facility. In the case that the Commission refuses to issue the application, the applicable appeal procedure has not been amended by the updated Regulations.
Contract of Temporary Emphyteusis
For the concession of the commercialisation of the sports facility to be granted, the amended Regulations added the requirement that the Commission is to appear on the public deed between the sports organisation and SportMalta to declare its approval. In this respect, the Commission's newly granted legal personality enables it to appear on said public deed.
Rather than requiring a declaration as to the current market value of the land over which the sports facility is built, the updated Regulations require a declaration as to the ground rent payable to SportMalta in respect of the sports and commercial areas.
An additional requirement that has been introduced by these recent amendments and emanates from the Government Lands Act is the approval of the public deed by Parliament.
Valuation of Land and Ground Rent
The Lands Authority is entrusted with the responsibility of determining the freehold value of the footprint of the land over which the commercial activity is proposed (the “Freehold Value”). This Freehold Value is calculated by gauging the difference between the land's estimated value (including its full development potential) and the value of the improvements made throughout the years by the sports organisation.
The Lands Authority is also responsible for determining the emphyteutical concession's annual ground rent. The Regulations now explain the applicable percentages payable, as this calculation was not regulated prior to the amendments. The annual ground rent payable varies according to whether the relevant floorspace is designated for a sports activity, a sports ancillary activity, or a commercial activity.
The annual ground rent for the areas designated for the sports activity and the related sports ancillary activities corresponds to 4.25% of the Freehold Value. The annual ground rent for the areas designated for the commercial activity is slightly higher in percentage, corresponding to 5.75% of the Freehold Value.
A public request for proposals by sports organisations must now be published with the Commission's approval. This must be done prior to the sports organisation's contract with a third-party operator for the development or management of the commercial activity.
Effect of Guidelines
In addition, the amendments clarify that the guidelines issued by the Commission are to be considered an integral part of the Regulations. Therefore, these guidelines are now binding as law.
Originally Published by Times of Malta
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