After NAO started investigation of illegal sub-lease, GWU redeemed ground rent

The General Workers Union was granted a go-ahead by the political establishment to sub-lease its offices to the state utility billing company ARMS, in full breach of its 1957 lease agreement for its Valletta headquarters - a report by the National Audit Office reveals.

But it appears there is no clear identification of who green-lit the arrangement.

And in spite of an NAO investigation into the abusive sub-let having started in February 2015 on instigation of the Opposition, the GWU redeemed its ground rent to render the property freehold - ostensibly so that it could be freed of the obligations of the 1957 agreement.

The NAO audit revealed that the GWU could not sub-lease its offices to ARMS without holding a 51% shareholding in the company – a specific condition in the 1957 agreement for the grant of its Valletta land, that was later amended in 1997.

The Government Property Department (GPD) informed the union verbally in April 2014 that such a permit could only be granted by parliamentary resolution, that is, by a vote in the House of Representatives. Secretary-general Tony Zarb told the GPD that “the pertinent authorities were aware of this matter and… to proceed accordingly in order to accede to the union’s request.”

The NAO revealed that a senior official from the Ministry for Energy and Health had enquired back in March 2014 with the GPD about the procedure for the GWU to lease a part of the building to a government entity. On his part, former secretary-general Tony Zarb refused to reply in writing to the NAO of his contacts with the unidentified ministry official in question.

The NAO said that the GPD had failed to answer the March 2014 letter from the GWU asking for clearance on the ARMS sub-lease, dubbing it a shortcoming on the GPD’s part.

It turns out that the GPD was preparing a memorandum to be submitted to the parliamentary secretary for lands requesting an amendment to the union’s emphyteusis. But unbeknown to GPD officials, the GWU and ARMS signed the lease agreement anyway.

Even worse, the memorandum itself did not even make it to the parliamentary secretary’s desk, a fact which the NAO says was “unreasonable” since the GPD seemed to expect that it should have been prompted by the ministry to take action.

It also turns out that the GWU has, in breach of the 1957 lease, rented out space to companies it does not own, namely to the operators of the Sciacca Grill restaurant and to Vjaggi Untours – also a union subsidiary which is however 60% owned by the Orange Travel Group.

By the time that the NAO was officially asked by Opposition MPs to investigate press reports that the GWU was sub-leasing its offices to ARMS, only months later in May 2015 the union finally redeemed the annual €801 ground rent by paying the GPD a total of €16,026, rendering the property freehold – and this is where the NAO believes that government should kick-start legal action.

The GWU claims that since it redeemed the ground rent, all clauses in the 1957 and 1997 lease agreements were rendered obsolete. In its audit, the NAO said that the GPD and Commissioner of Land confirmed that there was no further correspondence in relation to this matter, aside from the schedule of redemption.

But in an opinion from the Attorney General, the NAO insisted that irrespective of the redemption, the obligations arising out of the original contract are still binding. The NAO said that the GPD should take legal action against the GWU.

“[The NAO] is of the opinion that once the ground rent had been redeemed, the contractual relationship and the obligations arising out of such an contract would still be binding. Notwithstanding, this Office deems this matter to be a legal one, which should be decided in an appropriate judicial forum should circumstances so warrant,” the NAO said.

The NAO also said that it struggled to comprehend how the GPD failed to note that the GWU was illegally sub-leasing its property to other establishments, and has recommended legal action.

Selection of GWU offices

The GWU was selected by ARMS in 2014 from five different bidders offering office space, with the lowest offer at €61,950 rent annually.

However it transpires that the selection was made verbally: no documentation was provided by ARMS as to what action was proposed on the bids, save for the architect's plans submitted for the GWU bid; and the GWU deputy secretary-general confirmed he was notified verbally in April 2014 of the successful bid.