Ministry disputes Royal Watler lease audit

The government Ministry of District
Administration claimed last week that an audit on the leases for tenants in
George Town’s Royal Watler cruise terminal contained “serious inaccuracies”,
although there was apparently no effort to make those “inaccuracies” known
prior to the report’s completion.

The findings of the audit were
first reported in the Caymanian Compass last month.

According to the Internal Audit
Unit’s report, which was released in October 2009, most of the tenants in the
Royal Watler cruise terminal in downtown George Town were operating without a
lease during 2008-2009, and some had not paid for their accommodations.

A press release sent Friday by
ministry chief officer Kearney Gomez disputed this, for all but one of the
rental agreements and for the first month’s rent payments at the terminal.  

“Commercial leases were duly
executed for 13 of the 14 units between December 2006 and January 2008,” the
statement read. “The final unit remained unoccupied due to planning issues
until October 2009. Contrary to statements contained in the (audit) report, no
tenant was permitted into occupation prior to signing a lease and paying a
first rent cheque.”

The statement then notes that those
initially signed leases were not “registered” for up to three years. The Port
Authority’s Board of Directors stated in late 2009 that efforts were still
under way to collect delinquent rents and that the board was “working with
lawyers” to do so. 

“Once tenants had been signed up
for each unit, the role of the Lands and Survey Department was complete,” The
ministry statement read. “Thereafter, the Port Authority undertook to directly
manage all Royal Watler units itself, taking full responsibility for all rent
collection, rent delinquency, and its own decision to award rent reductions
across the board.”

According to Mr. Gomez, the Lands
and Survey Department was contacted by the Port Authority to initially help
“market and sign up suitable tenants for the Royal Watler retail units”.

Internal Audit Unit reports always
contain responses from management of government agencies that are audited,
however in this report that response was obtained from the Port Authority, not
the ministry or the Lands and Survey Department.

“The ministry and the department
only became aware of the report’s existence when the Compass published its
article,” a statement from the ministry read.  

In the audit report, two major
problems were identified: First, the report stated that only four of the 14
tenants housed at the port terminal area during the government’s 2008/09 budget
year had written and signed lease agreements in place. It said five tenants
owed rent payments totalling more than $200,000.

The delinquent period on those rent
payments ranged between four and 15 months, the report stated.

“One of these tenants has not paid
rent from the commencement date of their signed lease,” auditors noted in their

Although the report wasn’t released
until October 2009, and did not become public until the Caymanian Compass filed
an open records request this month, the problems with leases at the Royal
Watler terminal appear to have occurred during the previous government administration
– prior to the May 2009 elections.

Since that time, membership of the
Port Authority’s Board of Directors has changed as the incoming government put
new personnel in place.

According to managers at the Port
Authority, the situation was supposed to have been resolved before the beginning
of this year, but they were concerned that legal red tape could delay clearing
up certain issues.

Port officials indicated, when
contacted last month, that the issue was still an on-going matter.

The audit report did state that
Port Authority board members at the time contracted with the Lands and Survey
Department to procure tenants and set up lease agreements.

“However, the board did not
adequately monitor the performance of the Lands and Survey Department in this
regard,” the audit stated. “Tenants have occupied the authority’s premises for
periods exceeding one year without formally documenting the terms and
conditions in a lease.”

Auditors advised the board to
immediately review all current lease arrangements with the Royal Watler

In their response to the audit, the
port board noted that new criteria had been developed with regard to accepting
tenants into the Royal Watler cruise terminal area and that technical legal
issues had taken some time to resolve.

“(The) process of obtaining a
vested interest (in the Crown property Royal Watler sits on) took upward of
three years to complete, but is now completed,” the port’s written response
said. “It’s only since this procedure is completed that the contract for each
tenant is being executed.”

That statement was disputed by
Ministry of District Administration officials. 

“The (Lands and Survey) Department
agrees that registration of the completed leases could not occur until
ownership of the parcel was vested to the Port Authority and that this took
three years, but this was largely outside the control of the department,” the
statement continued. “This (delay) had no effect on day to day management of
the tenants, nor did it in any way affect the legality and contractual nature
of the lease agreements which had been signed.”

Despite statements from the
ministry that 13 of 14 leases had been signed and “a first rent cheque paid”,
port officials told auditors in late 2009 that they were still working with
lawyers to collect all delinquent lease payments from tenants and previous
tenants at Royal Watler.

As of 31 March, 2009, auditors said
$210,364.76 had not been paid by five tenants at the cruise ship terminal. As
an incentive, the Port Authority Board had offered a 15 per cent rent reduction
to Royal Watler tenants, whose rent was paid up by 31 May, 2009.

As of mid-June, auditors said no
one had taken the board up on that offer.

“The lack of decisive and timely
action by the board and management has allowed a significant amount of debt to
accumulate and this sets the precedent that late or non-payment of rent is
acceptable,” auditors noted. “In instances where a lease agreement exists, the
terms of the lease were not enforced.”

Port management noted that legal
action had begun to collect outstanding sums from two tenants, and that the
recovery process could take some time “due to the legal ramifications involved”.

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