Preliminary Review Leasing of private property by Government

The Auditor General, Mr. Charles Deguara, presented the Preliminary Review highlighted in caption to the Honourable Speaker of the House of Representatives Dr Anglu Farrugia. This Review was primarily intended to identify the private properties being leased by Governmental Entities across Malta and Gozo and to analyse their main characteristics. The leasing of private property by Governmental Entities has been increasing over the years mainly due to the expansion of public services and the establishment of new Entities. An NAO survey showed that as at end December 2022, Governmental Entities were leasing at least 260 properties from the private sector. This figure excludes property where leasing costs were less than €1,000 annually.

In many instances, Government Entities are resorting to leasing arrangements despite government inventories maintained by the Lands Authority listing more than 4,000 unutilised properties. A range of operational issues, however, hinder the Lands Authority from ensuring more effective and efficient estate management which will also facilitate the use of this portfolio of unutilised property by Governmental Entities. The Authority has historically experienced an acute shortage of financial, human and technological resources. Additionally, most of the unutilised property requires extensive refurbishment at a considerable expense, and which in practice cannot be available for use by Government Entities in a short timeframe. Constraints limiting the availability and use of government-owned properties also exist at the Joint Office where complex issues related to the registering of ecclesiastical properties transferred to the State under the 1993 Church-State Agreement prevail.

The circumstances presented in the preceding paragraph are, in part, conducive to the leasing of private property. In 2022, the leasing cost of the 260 Government-leased private properties considered for this Preliminary Review amounted to €22 million (excl. VAT). In 43 per cent of these leases, Governmental Entities did not carry out a formal or documented needs assessment prior to leasing private properties.
In around nine per cent of the 260 leases, Governmental Entities diverted from the regulatory framework governed by the Procurement of Property Regulations (S.L. 601.12) which came into force on 30 April 2020. Prior to this date, the procurement and leasing of property was exempted from the Public Procurement Regulations (S.L. 601.03).

Two thirds of the 260 Government-leased private properties were used as offices. In six of these cases, Governmental Entities each incurred additional costs to leasing fees of over €1 million to upgrade the newly acquired office-space to their specific requirements. Of note is that these arrangements had an average lease of 13 years.

This Preliminary Review uncovered various governance concerns. More specifically, these concerns relate to compliance to the regulatory framework, economy, efficiency, and effectiveness, as well as accountability and transparency issues. These elements affect the degree to which some of the leasing arrangements could be considered as optimal and conducive to value for money. Such situation implies that Government needs to strengthen its estate management function, both with respect to the State-owned properties as well as the leasing arrangements with the private sector. In this regard, this Report proposes a number of recommendations.

In view of the concerns raised in this Preliminary Review, this Office intends to adopt a risk-based approach for selecting and analysing in further detail a number of these leasing arrangements. This analysis shall be presented through a subsequent report.

To view report (.PDF) please follow link.