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Ministry of Tourism Issues New Rule

Ministry of Tourism Issues New Rules for Licensing Hotel Management Companies
As Parliament, Government and Ministers have all been busy with political events unfolding, not much business legislation has been issued during the last month. However, one of the rare exceptions was the issuance of new rules by the Minister of Tourism concerning the conditions for licensing hotel management companies by decision No. 300 of 2012 (the “Decision”).[1] This is worth mentioning because the Ministry of Tourism is one of the few ministries – if not the only one – where consistent effort has been made in order to simplify and promote the investment environment, and has accordingly issued during the last year several decisions pertaining to licensing diving centers, tourism companies, touristic restaurants and others. The new Decision dealing with licenses for hotel management companies provides comprehensive and clear conditions for regulating one of the corner stones of the tourism business, and merges various conflicting Decisions into one set of rules, thus offering investors a higher level of transparency and clarity.
Hotel Management
As defined in Article One of the new Decision, Hotel Management Companies are the ones which deal only with the “management of touristic establishment, resorts, villages and hotels, and the marketing of time shares for such establishments, villages and resorts with which it has management contractual agreements and has the power to deal in units whether by sale, management or marketing”. The previous definition highlights the following:
  1. The Decision did not require hotels and resorts to outsource management to specialized companies, but rather made it an option, otherwise hotel owners can go on managing their hotels themselves.
  1. The Decision stated that hotel management must be the only activity undertaken by the licensed company.
  1. The Decision included in the scope of definition of hotel management, time share sales and marketing.
Licensing Conditions
  1. The licensed company must be either a joint stock, limited liability, or partnership limited by shares company.
  1. The company’s issued and paid up capital must be no less than two million Egyptian Pounds.
  1. Its main purpose must be hotel management.
  1. At least one third of the company’s board members must have experience in the hotel business, and at least one of them must have ten years of experience in that field.
  1. Payment of insurance to the Ministry of Tourism worth two hundred thousand pounds.
  1. The company must have an adequately furnished and equipped head office in Egypt, or if it is the branch of a foreign company then it must have a branch office.
  1. The company must employ a full time manager, with proper qualifications, proficient in at least one foreign language, and with a minimum ten-year experience in the field.
  1. If the manager is a foreigner, then he/she must be assisted by an Egyptian assistant manager with at least three years’ experience (although there is some inconsistency here as elsewhere in the Decision the required experience for the Egyptian assistant manager is five years).
  1. The company must provide the set of documents spelled out in detail in the Decision.
Administration
Licenses are issued by the Ministry of Tourism’s Hotels and Touristic Villages Department and applications must be responded to within sixty days of submission. However, if the company is not a member of the Hotels Chamber, then it will be issued with a temporary license, pending completion of its membership within six months, after which the license becomes a final one. A special register is to be established at the Ministry for the registration of licensed hotel management companies.
Dispute Resolution
The Decision states that a committee at the Ministry of Tourism shall be established to mediate in disputes between hotel management companies and the hotels under their management. Such committee shall be chaired by the Minister’s legal advisor, and shall have as members the head of the Ministry’s Hotels Department, the head of the Egyptian Federation for Chambers of Tourism, the head of the Chamber for Touristic Establishments and the head of the Ministry’s Central Department for Licenses. The committee shall review disputes between the companies and the touristic establishments in order to mediate and find amicable solutions, and is that if not possible, then the committee shall have the power to issue binding decisions by majority of its members on the disputing parties. This provision in the new Decision requires some attention, as it violates judicial and constitutional principles long established in the Egyptian legal system, whereby no legal provision may impose on private law parties’ decisions made by arbitration or conciliation committees except on the basis of a voluntary adherence to the arbitration or conciliation process either prior to of following the dispute. It is clear that those who drafted the new Decision were well aware of this, as they specifically stated therein that: “in all cases, the committee may not issue mandatory decisions pertaining to any aspect of the dispute which is under judicial jurisdiction”. It is, however, an unsuccessful attempt to deal with this matter, and only further complicates it by assuming that any aspect of a dispute between two contracting parties may be outside of the jurisdiction of the courts. Accordingly, any mandatory decision taken by the committee must be in violation of the principle of voluntary arbitration and conciliation.
Withdrawal and Cancellation of the License
The hotel management company’s license may be withdrawn or canceled in any of the following cases:
  1. Inflicting damage on the country’s touristic reputation.
  1. Violation of the terms of the license.
  1. Failure to comply with the decisions of the mediation committee (which as previously said is in violation of legal principles).
  1. If the company refrains from activity for six months without notifying the Ministry.
  1. If the license was obtained on the basis of incorrect information.
  1. If the company has no manager for more than six months.
  1. If it undertakes the activity of selling time shares without entering into a contractual agreement with the owners.
  1. If it prevents the Ministry’s inspectors from undertaking their work.
  1. If it fails to join the membership of the Chamber of Touristic establishments for six months.
Coming into Force
Finally, the Decision states in its last article that the companies active in the field of hotel management must comply with its provisions within a period of one year, starting 1 January 2013, i.e. by end of 31 December 2013.
Conclusion
The new Decision deals with the subject of hotel management in a comprehensive and transparent manner, which is a great improvement as it makes the life of investors easier and provides them with the clarity that is so required in business decisions. However, the Decision needs to be reviewed and corrected with respect to the powers and jurisdiction of the conciliation committee as it is in violation with principles and Egyptian law and constitution.   [1] Minister of Tourism’s Decision No. 300/2012 on the conditions for licensing hotel management companies, Egyptian Gazette, Issue No. 110 (cont.), 14 May 2012.
As Parliament, Government and Ministers have all been busy with political events unfolding, not much business legislation has been issued during the last month. However, one of the rare exceptions was the issuance of new rules by the Minister of Tourism concerning the conditions for licensing hotel management companies by decision No. 300 of 2012 (the “Decision”).[1] This is worth mentioning because the Ministry of Tourism is one of the few ministries – if not the only one – where consistent effort has been made in order to simplify and promote the investment environment, and has accordingly issued during the last year several decisions pertaining to licensing diving centers, tourism companies, touristic restaurants and others. The new Decision dealing with licenses for hotel management companies provides comprehensive and clear conditions for regulating one of the corner stones of the tourism business, and merges various conflicting Decisions into one set of rules, thus offering investors a higher level of transparency and clarity.
Hotel Management
As defined in Article One of the new Decision, Hotel Management Companies are the ones which deal only with the “management of touristic establishment, resorts, villages and hotels, and the marketing of time shares for such establishments, villages and resorts with which it has management contractual agreements and has the power to deal in units whether by sale, management or marketing”. The previous definition highlights the following:
  1. The Decision did not require hotels and resorts to outsource management to specialized companies, but rather made it an option, otherwise hotel owners can go on managing their hotels themselves.
  1. The Decision stated that hotel management must be the only activity undertaken by the licensed company.
  1. The Decision included in the scope of definition of hotel management, time share sales and marketing.
Licensing Conditions
  1. The licensed company must be either a joint stock, limited liability, or partnership limited by shares company.
  1. The company’s issued and paid up capital must be no less than two million Egyptian Pounds.
  1. Its main purpose must be hotel management.
  1. At least one third of the company’s board members must have experience in the hotel business, and at least one of them must have ten years of experience in that field.
  1. Payment of insurance to the Ministry of Tourism worth two hundred thousand pounds.
  1. The company must have an adequately furnished and equipped head office in Egypt, or if it is the branch of a foreign company then it must have a branch office.
  1. The company must employ a full time manager, with proper qualifications, proficient in at least one foreign language, and with a minimum ten-year experience in the field.
  1. If the manager is a foreigner, then he/she must be assisted by an Egyptian assistant manager with at least three years’ experience (although there is some inconsistency here as elsewhere in the Decision the required experience for the Egyptian assistant manager is five years).
  1. The company must provide the set of documents spelled out in detail in the Decision.
Administration
Licenses are issued by the Ministry of Tourism’s Hotels and Touristic Villages Department and applications must be responded to within sixty days of submission. However, if the company is not a member of the Hotels Chamber, then it will be issued with a temporary license, pending completion of its membership within six months, after which the license becomes a final one. A special register is to be established at the Ministry for the registration of licensed hotel management companies.
Dispute Resolution
The Decision states that a committee at the Ministry of Tourism shall be established to mediate in disputes between hotel management companies and the hotels under their management. Such committee shall be chaired by the Minister’s legal advisor, and shall have as members the head of the Ministry’s Hotels Department, the head of the Egyptian Federation for Chambers of Tourism, the head of the Chamber for Touristic Establishments and the head of the Ministry’s Central Department for Licenses. The committee shall review disputes between the companies and the touristic establishments in order to mediate and find amicable solutions, and is that if not possible, then the committee shall have the power to issue binding decisions by majority of its members on the disputing parties. This provision in the new Decision requires some attention, as it violates judicial and constitutional principles long established in the Egyptian legal system, whereby no legal provision may impose on private law parties’ decisions made by arbitration or conciliation committees except on the basis of a voluntary adherence to the arbitration or conciliation process either prior to of following the dispute. It is clear that those who drafted the new Decision were well aware of this, as they specifically stated therein that: “in all cases, the committee may not issue mandatory decisions pertaining to any aspect of the dispute which is under judicial jurisdiction”. It is, however, an unsuccessful attempt to deal with this matter, and only further complicates it by assuming that any aspect of a dispute between two contracting parties may be outside of the jurisdiction of the courts. Accordingly, any mandatory decision taken by the committee must be in violation of the principle of voluntary arbitration and conciliation.
Withdrawal and Cancellation of the License
The hotel management company’s license may be withdrawn or canceled in any of the following cases:
  1. Inflicting damage on the country’s touristic reputation.
  1. Violation of the terms of the license.
  1. Failure to comply with the decisions of the mediation committee (which as previously said is in violation of legal principles).
  1. If the company refrains from activity for six months without notifying the Ministry.
  1. If the license was obtained on the basis of incorrect information.
  1. If the company has no manager for more than six months.
  1. If it undertakes the activity of selling time shares without entering into a contractual agreement with the owners.
  1. If it prevents the Ministry’s inspectors from undertaking their work.
  1. If it fails to join the membership of the Chamber of Touristic establishments for six months.
Coming into Force
Finally, the Decision states in its last article that the companies active in the field of hotel management must comply with its provisions within a period of one year, starting 1 January 2013, i.e. by end of 31 December 2013.
Conclusion
The new Decision deals with the subject of hotel management in a comprehensive and transparent manner, which is a great improvement as it makes the life of investors easier and provides them with the clarity that is so required in business decisions. However, the Decision needs to be reviewed and corrected with respect to the powers and jurisdiction of the conciliation committee as it is in violation with principles and Egyptian law and constitution.   [1] Minister of Tourism’s Decision No. 300/2012 on the conditions for licensing hotel management companies, Egyptian Gazette, Issue No. 110 (cont.), 14 May 2012.