• UDA loses Rs. 330 m due to unauthorised leasing of D.R. Wijewardena Mw. land, COPE reveals
• Land allocated for mixed development project in 2007; no development to date

The Urban Development Authority (UDA) has sought legal advice from the Attorney General (AG) to cancel the controversial lease agreement entered into with Lake Leisure Holdings, a subsidiary of Rank Entertainment Holdings Ltd., for a land located on D.R. Wijewardena Mawatha in Colombo.

The authority has come under the spotlight recently, following revelations made by the Committee on Public Enterprises (COPE) uncovering significant irregularities in the leasing and management of one of its prime properties on D.R. Wijewardena Mawatha in Colombo Fort.

In a recent COPE meeting chaired by MP Rohitha Abeygunawardena, the committee revealed that the UDA had incurred a loss of Rs. 330 million due to the unauthorised leasing of the property on D.R. Wijewardena Mawatha.

COPE has demanded detailed reports on this incident, emphasising the need for transparency and accountability.

Controversial transactions

There has been an evident lack of transparency in the initial stages of the transaction. As revealed in the recent audit report on the UDA issued by the National Audit Office (NAO), in 2007, the authority had provided a valuable parcel of land on D.R. Wijewardena Mawatha, measuring two acres, two roods, and 21.4 perches, to Rank Entertainment Holdings Ltd.

As per the report, this transaction had been carried out without public quotations, a formal agreement, or Cabinet approval – an alarming deviation from standard procedure. It was only two years later, on 12 August 2009, that Cabinet approval had been retroactively granted, followed by an agreement on 18 February 2010 to lease the land for 30 years at an assessed value of Rs. 1,300 million.

The NAO’s audit report highlights that according to the UDA’s legal policies, the land should not have been handed over for use until the lease rents were fully paid. However, Rank Entertainment Holdings was allowed to enjoy the land without fulfilling this essential requirement. 

From 2009 to 2013, the company had made only partial payments totalling Rs. 557 million across seven instances. Meanwhile, it had generated income by using the land as a vehicle park, yet no development activity had occurred, directly contravening the lease agreement.

In 2013, another agreement had been signed with the same company, which had also failed to meet its payment obligations. The situation had taken a further twist in 2017 when the UDA’s Board of Directors had approved a new lease agreement. This time, the land had been leased to another company owned by the same individual for 50 years at a value of Rs. 3,352 million, based on a valuation of Rs. 3,620 million dated 12 August 2016.

This new agreement had come with a controversial concession. The investor had requested an interest deduction on the Rs. 557 million paid from 2007 to 2017. Astonishingly, the UDA had agreed to deduct Rs. 330 million from the Chief Valuer’s amount without proper Board approval, leading to significant financial loss. By 31 December 2023, no development had taken place on the land, and the responsible parties remained unaccountable.

Calls for accountability

The NAO’s audit report had made several critical recommendations. It had emphasised that land leases should be awarded strictly in accordance with laws, rules, and UDA provisions. Furthermore, the NAO had called for accountability, urging the UDA to take action against those responsible for the financial losses incurred due to the mismanaged D.R. Wijewardena Mawatha transaction.

In response, the UDA management had stated that a preliminary investigation had been conducted by a committee of senior officers, including the Director (Legal), Director (Land Development and Management), and Director (Property Management and Recoveries). 

Recommendations from this investigation were presented at a Board of Management meeting on 7 November 2022. Following this, a new committee comprising five members was appointed on 17 November 2022 to take further action based on these recommendations.

Despite these steps, the NAO had noted that as of 31 December 2023, no significant action had been taken against the responsible parties and no development activities had been initiated on the land.

UDA response

When clarification was sought on the matter, UDA Chairman Nimesh Herath confirmed the seeking of legal advice from the AG’s Department to cancel the agreement.

He said that despite Clause 1.11 of this lease agreement allowing cancellation of the agreement with retention of 10% of the initial payment by the company, attention had been drawn to the total payable amount.

Elaborating further, Herath said that in 2007, Rank Entertainment Holdings Ltd. had been granted physical possession of this land for a mixed development project, following necessary Cabinet approval on 12 August 2009. The land had been valued at Rs. 1,300 million for a 30-year lease period on 18 February 2010, but the UDA received only Rs. 557 million.

Subsequently, on 16 February 2017, the land was valued at Rs. 3,620 million for a 50-year lease period and a lease agreement was entered into by Lake Leisure Holdings, a subsidiary of Rank Entertainment Holdings Ltd., according to the UDA Chairman.

However, the UDA sought legal advice from the AG to cancel the agreement, making the request on 16 May 2023.

Herath further stated that it had been revealed that upon the company’s request for interest deduction on the previous payment, the UDA had agreed to deduct Rs. 330 million from the land’s valuation amount without proper approval from the Board of Directors.

“The lease agreement, prepared by the UDA Director (Legal) T. Liyanarachchi, leased the land for 50 years. An investigation is currently underway regarding officials responsible for the loss incurred by the UDA due to the deduction of Rs. 330 million from the initial valuation,” the Chairman said.

He explained that following a decision by the UDA’s Board of Directors on 3 November 2022, a five-member committee had been appointed to investigate the matter. 

The committee recommended cancelling the lease agreement and taking action against the lawyer who drafted the lease with special provisions without Board approval. Disciplinary action against the lawyer has been recommended to the Bar Association of Sri Lanka (BASL) and the Supreme Court, along with a preliminary investigation.

One of the recommendations has already resulted in a legal case filed against the Director (Legal). A proper disciplinary inquiry was currently underway based on details revealed during the preliminary investigation, Herath added.