Hotel leases valid until 2013 –– African Sun

In its defence outline, the group says the matter –– Dawn’s court application to cancel leases –– was improperly brought before the High Court as the matter should have been heard and settled by arbitration through the Commercial Arbitration Centre.

Dawn Properties approached the High Court under case number HC3014/12 seeking cancellation of eight property leases citing breaches in the contract ranging from late rental payments, lack of maintenance and diminishing commercial standing of the buildings due to low business.

The properties are Hwange Safari Lodge in Hwange, Holiday Inn Mutare (now African Sun Amber Mutare), Carribea Bay Sun in Kariba, Elephant Hills Hotel in Victoria Falls, Crowne Plaza Monomotapa Hotel in Harare, Express Holiday Inn in Beitbridge and Troutbeck Hotel in Nyanga.

In its defence papers filed at the High Court, African Sun through its lawyers Dube, Manikai & Hwacha, said the lease agreements with Dawn’s subsidiaries Gold Coast Properties and Laclede Investments still stand.

African Sun says each lease agreement is different, contrary to Dawn’s claims in court papers. Dawn grouped seven of the hotel properties under Gold Coast and one under Laclede.

African Sun says Dawn’s application should have noted the differences in the lease agreements, which were specific to the hotels. The hotel group says the lease for Crowne Plaza Monomotapa, for instance, states that turnover rental was supposed to be 10% of trading turnover and 6% of food and beverages each month.

It was further agreed that food revenue would graduate to 10% in response to room occupancy and time limit based on the fact that the average room occupancy would be 55% over a six month period.

The lease provides for an initial lease period commencing on July 1 2003 to July 30, 2013 with a right of renewal for four different periods terminating on June 30 2053.
The same conditions apply to Holiday Inn Mutare but the increase was based on the achievement of an average occupancy rate of 35% over a six month period. 

Troutbeck Inn and Estate are on a turnover rental of 10% of the trading turnover and 5% of food and beverage related revenue each month but would increase to 10% upon thesuccessful repositioning of the hotel and upon attainment of an average occupancy rate of 56% over a six month period.

Elephant Hills food and beverages turnover would also be increased if there was an average occupancy rate of over 45% over a 6 month period, Hwange at 50% occupancy, Carribea Bay  at 60% occupancy upon completion of the repositioning of the hotel. The Express Holiday Inn increases are based on the attainment of an average occupancy rate of 35%, Great Zimbabwe at 60% occupancy and upon completion of repositioning the hotel.

Based on this, the group denies that the leases were terminated on October 31, 2009 as highlighted in Dawn’s court application, saying a notice to terminate the leases was not issued in line with the provisions of the lease agreements.

African Sun further denies late rental payments, pointing out rentals are calculated through the production of estimates by Dawn based on the turnover figures. After that, actual monthly results are then produced and sent to Dawn who then prepare tax invoices, which show whether African Sun has made an underpayment or overpayment.
African Sun says it actually overpaid rentals between September 2010 to April 2011 and June 2011.

The group says Dawn does not have the power and authority to institute these proceedings –– cancelling the leases –– having due regard to the provisions and requirements of section 183 of the Companies Act (Chapter 24:03).

On maintenance of properties, African Sun says because Dawn reneged on the financial arrangements with the IDC South Africa, the group could not draw down on a facility that would have supported the refurbishment of properties. African Sun, however, secured a loan from Afreximbank for the refurbishment of six hotel properties.
Dawn had indicated the hotels were not generating good business but African Sun says growth levels in the past three years have been above inflation.

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