Taj's lease woes continue: Now, Palace fate uncertain

DDA exploring options, including auction and renewal of lease

The Delhi Development Authority (DDA) is yet to decide on whether it would want an auction of the Taj Palace Hotel or renew its lease, even as the agreement between the two expires in just about two months. While Taj Palace recently paid the principal amount that was due to DDA, the Authority is still exploring all options. An auction may bring in a new owner.

Taj Palace, owned by Indian Hotels Company (IHC), is the group’s second property in New Delhi besides Taj Mahal which is facing lease trouble. Taj Palace’s lease with DDA is till March 31, 2013, and that of Taj Mahal Hotel (also known as Taj Mansingh) with the New Delhi Municipal Corporation (NDMC) till October 2013 after two extensions. NDMC announced auction of Taj Mansingh last year, but it is learnt that negotiations are still on for a lease renewal.

In the case of Taj Palace, the company recently put in its request for lease renewal with DDA. The two parties have been in arbitration since 1997 over rent-related issues. A senior DDA official told Business Standard that the company has paid the principal amount that was due to DDA “without prejudice to their rights”.
 

WHO WILL RUN THE PALACE?

• Taj Palace is operated by Indian Hotels
• The hotel’s lease with the Delhi Development Authority (DDA) lasts till March 31
• Indian Hotels recently put in a request for lease renewal with DDA. The two parties have been in arbitration since 1997 over rent-related issues

When asked about the issue of lease renewal, Raymond Bickson, managing director of IHC, did not comment.

According to DDA estimates, the company owed it about Rs 60 crore, including interest. A part of this payment has been made recently by the company, a DDA official confirmed.

On whether the local body will follow NDMC in going for an auction, the DDA official said the matter is still being discussed. The Taj Group had signed a 30-year lease agreement with DDA on April 1, 1983, for Taj Palace.

The main point of contention between DDA and Taj group is the calculation of licence fee as a percentage of gross receipts.

DDA claims several items including staff food, income from the shopping arcade, telephone recoveries, banquet income, service charges, etc. have not been included in gross receipts by the company, thereby bringing down the annual licence fee amount payable.

The arbitration is being done by retired Supreme Court chief justice Y K Sabharwal. IHC is being represented by S K Kandhari who has also been a director in Taj Group of hotels for 29 years.

Taj Hotels Resorts & Palaces comprises 93 hotels in 53 locations, including 25 Ginger hotels across India, with an additional 16 international hotels in the Maldives, Malaysia, Australia, the UK, US, Bhutan, Sri Lanka, Africa and the Middle East.