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Monday, May 20, 2019
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Tell it to SunStar: On the issue of the closure of BIG Hotel in Mandaue City

MANDAUE City did the unthinkable. It ordered and implemented the closure of a completely legitimate and honest-to-goodness business in Mandaue - The BIG Hotel group.

There are a lot of accusations hurled against the business by the City Administration. They accused BIG Hotel of operating without a business permit and not paying the necessary taxes to the City.

The mayor also alleged that Big Hotel was illegally possessing the property of the City (1.4 hectares) where its structure stands, because of an unauthorized assignment between Katumanan Hardware (original lessee) and Cenore Corporation (assignee-lessee).

The City threatened closure within 30 days from February 11, 2019 thru a cease and desist order if BIG Hotel will not be able to rectify the alleged violations.

Yesterday, prior to the expiration of the 30-day period, Big Hotel was closed. The City alleged that BIG Hotel was in bad faith for writing directly to the City Council requesting ratification for the alleged un-authorized assignment between Katumanan and CENORE.

Officials of the City accused former Mayor Jonas Cortes of entering into an “anomalous” contract with Katumanan and Cenore for consenting to the assignment without “authority” from the Council. They are now imputing blame on Jonas Cortes for everything that has happened with BIG Hotel.

As the chief-of-staff Mayor Jonas Cortes at present and during the time of the lease and assignment in 2012, I wish to clear this issue once and for all since there have been a lot of misleading statements which have been aimed to malign our administration of Mandaue during that time.

To understand this issue, we need to view in thru the lens of history.

Mandaue City and Katumanan Hardware entered into a contract of lease in the year 2007. This contract was renegotiated in the year 2012 to extend the term of the lease which was precipitated by the City's master plan to reinvigorate the Mandaue City South Point and Mantawi International Drive to be the new entertainment and commercial district of Mandaue City and the lessee’s desire to infuse additional capital investment for business expansion.

In fact, in the year 2012, Mantawi International Drive was a veritable “dead zone”, apart from Parkmall’s conservative development during that time, the lessees of the City in that area only operated van-yards, bodegas and warehouses. By 2012, the following businesses heeded the call of the City to renew their contracts and invest in the targeted commercial zone:

1. Seaboard Realty which constructed and operates City Time Square, City Time Square 2 and Maroo Arcade;

2. Ong-Kin-King Development Corp which is constructing and developing Jamestown Lifestyle Strip;

3. Seaboard Realty which subleased M02 Expanded Entertainment Complex, Westown Lagoon Resort Hotel and The Market sa Sugbo Merkado;

4. Cebu Oversea Hardware Inc. which constructed and expanded Parkmall;

5. And Katumanan Hardware and CENORE which constructed Big Hotel.

Among the renegotiated provisions of the new lease with Katumanan Hardware was the requirement to invest an additional 60 Million in commercial structures to compliment the entertainment and commercial district spatial plan. The lease was also extended for an additional 25 years in order to allow a reasonable period for the return of investment of the lessee. Further, the contract likewise contained a right by the lessee to assign the entire lease to a subsidiary or an affiliate with written approval of the city.

The City Council of Mandaue authorized the mayor to sign the renewed contract of lease with Katumanan Hardware and after the execution by the parties, said contract was ratified by the Council. In 2013, lessee Katumanan Hardware decided to assign the lease since its line of business is in the hardware and construction supply and it neither had the capability nor the experience to operate a commercial real estate business. Said assignee was Cenore Corporation.

A deed of assignment was executed by Katumanan Hardware in favor of Cenore Corporation for a consideration of P25 million to be paid to Katumanan Hardware for the transfer of rights. The assignment was conformed in writing by Cortes. Thereafter, Cenore constructed BIG Hotel.

The authority granted by the Council to the mayor to sign the lease contract with Katumanan Hardware includes the recognition and implementation of all provisions within the lease contract. The right to assign the lease is expressly granted in the contract, and the only limitations being that it must be assigned to an affiliate and there must be permission of the Mayor in writing. And this was clearly complied by the parties as opined by the City a Legal Office in a document dated April 22, 2013.

However, the present mayor claims that the assignment of the leasehold was defective since there was no authority by the SP for the mayor to sign and approve the assignment. This interpretation is the marrow of contention in this issue. Unfortunately, this allegation is gravely mistaken. If the intention of the SP and the parties was to undergo another grant of authority to exercise this provision, it should have been properly expressed in the contract and the requirement for affiliation of the lessee and transferee should have been unnecessary.

It is because of this gravely mistaken interpretation that the City refused the issuance of the mayor’s permit to Cenore Corporation, which in turn precipitated to the arbitrary closure of BIG Hotel.

A simple difference in legal interpretation would only need to be threshed out and resolved and should not result in a closure which would negatively impact the people and businesses of Mandaue.

In fact, a remedy has actually been reached February 27, 2019. During the regular session of the 17th City Council, Mandaue City ratified the Deed of Assignment between Katumanan Hardware and CENORE which was allegedly lacking authority by the Council.

Hours before the regular session on February 27, 2019, I heard news that the mayor wrote to the members of the Council to withhold ratification or else face cases in the Ombudsman. This apparent encroachment of the exclusive authority of the SP to ratify and cure the alleged defect in consent betrays the true and real intention of the mayor on this issue.

This actually reveals the bigger picture when you consider this fact in conjunction with the sudden closure of BIG Hotel the morning before the ratification, cutting short the 30-day period. Why would the mayor prematurely close and cut-off the 30-day period for BIG Hotel to comply with the requirements when they were already on process to be ratified by the Council?

This series of calculated and unfortunate actions by the mayor and his staff portray clear bias. They publicly allege that the contract is illegal even without a court decision to back up their accusations. They publicly shame these businesses and businessmen, tarnishing them in the court of public opinion for political purposes, threatening their investments and endangering the jobs of Mandauehanons.

On the issue of underpriced rental rates

Another issue brought up by the mayor is the alleged undervalue of the rental rates of BIG Hotel.

Referring back to the historical consideration of this issue, it should be noted that this transaction is not a simple and straight lease contract but a conditional one. The contract of lease required a specific amount of investment and development. In turn, the rental rates were set lesser than the prevailing values in the real estate rental market. This is actually similar to the practice of granting tax holidays in export processing zones to encourage investment.

That is why this transaction should not be construed as disadvantageous. The mere influx of businesses, the employment opportunities and taxes that the City will earn because of this investment are consequential benefits shall be more than sufficient to make-up for the difference in the rental income the city is charging. Added to that, upon expiration of the lease, all these developments and improvements would be owned by Mandaue City.

Without this incentive scheme, the businesses and commercial activities on that area would have remained sparse.

The commercial boom along Mantawi Drive would not be what it is now if initiatives and steps were not taken to encourage and promote investment in that zone. Sadly, because of this political posturing of the present administration, development in Mandaue is now paralyzed at a standstill, everyone can see that.

This is the cost of shortsightedness and narrow-mindedness and ignorance, and the Mandauehanons are paying for it.


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