One of the long-term aims proclaimed in the Montenegro’s tourism development master plan is to develop country’s high-end tourism offering. As high-end tourism requires high-end hotels, a number of regulatory incentives has been introduced in order to foster their development, such as construction-related duties reliefs and VAT exemptions. A recently adopted strategic planning document for the Montenegrin coast (the Special Purpose Plan for the Coastal Area) heavily restricts new residential developments within a 1000 m wide strip along the coast, reserving this area for hospitality projects. Notwithstanding the official goals, five-star hotel development in one of the world’s fastest growing tourist destinations is still slow. Tourism business in Montenegro is still very seasonal, with the peak during the summer months and modest results in the remainder of the year. This makes the operational costs of 5-star hotels high and returns low. In contrast, there is a high demand for luxurious residences. This has sparked an idea to introduce by law a hybrid concept of condo hotels.
The condo hotel concept was firstly introduced in the Tourism Act of 2010. It was further refined in the 2018 Tourism and Hospitality Act. The main feature of condo hotel is that, unlike in traditional hotels, the accommodation units (i.e. apartments) within a condo hotel are sellable as individual units – one can own an individual accommodation unit within a hotel.
Under the 2010 legislation, the concept of condo hotels was under-regulated as the law merely provided for a definition of the condo hotel, recognizing it as a special hotel type, and introduced the possibility of ownership over hotel’s individual units.
The new 2018 legislation is more detailed. It recognizes separate notions of “condo business model” and “mixed business model”. To qualify for either status, a hotel must be in operation throughout the year and must either have a minimum five-star rating and be located in the coastal region or in the capital Podgorica, or have a minimum four-star rating and be located in the northern and central region excluding Podgorica.
In the condo model, all accommodation units can be sold individually and must be in commercial use for at least 10 months during the year. The commercial use in this context means that the units are made available to the hotel’s guests other than the condo owner, as part of the hotel’s offer. Consequently, the owner can effectively use the property for not more than two months within a year. The owner may not rent its unit outside the hotel’s offering.
In the mixed model, there is no restriction on how long the owner may use the unit and the offer of the units through the hotel is not mandatory. This model is reserved for the projects with the capacity of minimum 120 accommodation units in the coastal region or the capital or minimum 60 accommodation units in the northern and central region excluding the capita. Unlike in the condo model, the number of sellable units is limited to 50% of the total number of units in the hotel.
Under either of the models, the owners of individual units are obliged to enter into a management agreement with the hotel manager or, as the case may be, the hotel operator. The management agreement regulates unit owner’s participation in the management and maintenance of the hotel facility and the common areas, and the owner’s participation in the revenue generated by the hotel from rental of the owner’s unit. The 2018 legislation requires, at the pain of nullity of the management agreement, that the management agreement impose prohibition of sale and usage of the unit in the case of revocation of the hotel’s operational permit or category. The legislation also provides for the nullity of the agreement for sale and purchase of the hotel unit which is contrary to the above-mentioned prohibition of sale from the management agreement.
In order to secure that the development will be actually used as a hotel, the legislation provides that one’s ownership right over an individual units can be registered with the real estate cadastre only after the management company or the hotel operator obtains a license for engaging in hospitality activity and the hotel is properly categorized. Tourism inspection has the authority to close down a hotel for breach of the terms the licence or the awarded category. In case of hotel closure, private owners cannot use their units either. One may question whether the restriction on the right of the condo unit’s owner to sell the unit in case the hotel loses its license or category is justified. While the prohibition on the use of the unit in case the hotel loses the license or category is understandable given that the hospitability activity is essential to the condo hotel concept, the prohibition of sale under those circumstances is excessive as it prevents acquisition of the entire development.
According to the website of the Ministry of Sustainable Development and Tourism, there are currently only two hotels operating under the condo model and not a single one operating under the mixed model. The reason is in that the models had been under-regulated until 2018. There are certain hotels that appear to be condos but actually are not condos. An example is Regent hotel in Porto Montenegro, where a part of the building consists of privately owned apartments with access to the hotel’s services and with an option for the owners to enter into a rental pool arrangement, while the other part of the building is a regular hotel. This is not a condo hotel because the residential part is subject to the general regulations applicable to residential buildings (condominiums), which makes it difficult for the hotel operator to impose uniform hotel management rules.