Audit Office: Cyprus is losing revenue due to undervalued leases of forest land in Ayia Napa

The state continues to lose potential revenue from leasing forest land in Ayia Napa on which hotels are located. This conclusion was reached by the Cyprus Audit Office following an inspection.

The reason is outdated lease agreements under which some hotels have been paying a fixed amount for years without revision, despite growth in tourist flows, sector revenues, and inflation.

The audit showed that five hotels built on state forest land and operating under long-term lease agreements (up to 99 years) continue to pay under the terms of 2017–2022. During this period, the tourism sector in Ayia Napa grew significantly, but rental payments remained unchanged.

As noted by Auditor General Andreas Papaconstantinou, the revision of lease terms under contracts concluded back in 1970–1982 has been delayed for years and no longer reflects market reality.

The situation worsened after legislative changes in 2019, when the system of approving accommodation and catering prices was abolished. As a result, the Cyprus Forestry Department lost a stable basis for recalculating rental fees.

Consequently, most hotels have been paying the same amount for more than three years, regardless of growth in turnover and tourist demand.

The report revealed significant differences in rental payments between comparable properties. For example:

• one hotel pays about €81,000 per year,
• another, similar in size and capacity, pays about €41,000.

Two of the largest hotels occupying the biggest forest plots pay approximately €3.40 per square meter, while another hotel pays €7.38 per square meter — more than twice as much.

The Audit Office notes that such disparities are detached from market realities and may be considered a hidden form of state aid, violating principles of fair competition.

The report emphasizes the need to:

• promptly calculate market-based rental values,
• apply the recommendations of the Legal Service,
• ensure economically justified and fair use of state forest land.

The Forestry Department agreed with the audit’s findings but explained that lease terms cannot be changed unilaterally — consent of the tenants is required. The current contracts expire only in 2047, 2048, and 2069.

To recalculate rental rates, the department sent development plans for several hotels to the Land Registry. However, it emerged that:

• for two properties, official building permits are missing,
• documentation from the Famagusta administration has still not been received.

In addition, a legal opinion dated May 27, 2025, stresses that any changes to contracts are possible only by mutual consent of the parties and strictly within the framework of Contract Law.