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21 February 2018

New Montenegrin Law Seeks to Modernise the Tourism and Hospitality Industry

On 29 December 2017, the Montenegrin parliament adopted a new Law on Tourism and Hospitality (the "Law"), which entered into force on 18 January 2018.

The Law aims, among other things, to bring the quality of tourism and hospitality services in line with contemporary trends in order to position Montenegro as an exclusive tourist destination, to implement EU standards and to harmonise national laws with EU law.

Below is an overview of the main changes introduced by the Law in the hospitality sector.

1. Advertisement and promotion of the tourism and hospitality industry

For the first time in Montenegro, the Law introduced the rule that only properly licensed tourist/hospitality businesses can be advertised and promoted. Such advertising and promotion includes electronic and printed media, digital platforms (such as, Airbnb, TripAdvisor and others), social networks or any other means of communication. The law further stipulates a list of documents which have to be disclosed before the tourist or hospitality business can be advertised or promoted.

Failure to comply with these conditions is a misdemeanour punishable by a fine, and under certain circumstances, by the imposition of an interim measure – prohibition of the business activity for up to six months.

The Law also introduces the mandatory use of a quick response (QR) code – a matrix code that stores addresses and other information enabling quick electronic use and access to data in promotion of tourist/hospitality business activities.

The above aims to improve transparency and competition among all entities in the tourism and hospitality sector that comply with the law, while deterring those that do not.

2. Hospitality sector

The new Law now focuses on the regulation of exclusive hospitality facilities, recognised as having great investment potential in Montenegro. Thus, several novelties have been introduced in this sector.

2.1. Facilitating the commencement of hospitality business

In order to facilitate new hospitality businesses, in addition to obtaining approval from the competent authority, the Law introduced the possibility of registration in the Central Tourism Register. This is done by submitting an application and accompanying documents to the Central Tourism Register. In this case, control over the commencement of the business activity is shifted to the hospitality provider.

2.2. Operation of foreign entities

The Law clarifies that foreign legal or natural persons may perform hospitality business activities provided that they have established a presence in Montenegro through a foreign company branch and comply with other legal requirements.

2.3. Primary hospitality facilities 

As the main goal is to attract investment in exclusive hospitality facilities, the lawmaker regulated this area in more detail:

  • Hotel operating models

    Under the previous regulation, "condo" and "mixed use" were recognised as a type of hotel. The new Law has turned "condo" and "mixed use" into operating models.

    The condo operating model may be implemented within a five-star hotel in a coastal region or in the capital, or within a four-star hotel in the north and central regions that has to operate for at least 12 months a year. Accommodation units within a condo hotel intended to be sold have to be in commercial operation for at least 10 months a year and each unit is subject to individual sale.

    A mixed operating model may be implemented within a five-star hotel with a capacity of at least 120 accommodation units in a coastal region or the capital, or within a four-star hotel with a capacity of at least 60 accommodation units in the north and central regions. The hotel can offer for sale a maximum of 50% (or in exceptional circumstances 60%) of total accommodation units.

    Both models, among other things: (i) stipulate that obtaining the proper licence for provision of hospitality services is a condition for inscription of the ownership rights over sold units; (ii) require the existence of a management agreement [further described under Management Agreement].

    The main difference between the two models is that the lease of accommodation units within a mixed operating model is not mandatory but at the discretion of the owner (voluntary rental pool), while the condo model introduces a mandatory rental pool.

    Other conditions for using one of the two models are regulated in detail by the Law.

    It may be deemed that the introduction of operating models instead of hotel types creates more flexibility for investors, given that the model can be determined at a later stage and not in the construction phase, while complying with the requirements of the determined operating model.
  • Management agreement

    Unlike the previous regulations, the Law now explicitly regulates the management and maintenance of hotels operating under the condo or mixed operating model.

    The Law introduces a management and maintenance agreement. The elements and time limitations for the conclusion of such an agreement per year are regulated by the Law.

    If unit owners do not conclude a management agreement, it may lead to the nullity of the agreement on sale of the unit within the condo or mixed use operating model.
  • Change of operating model

    One- and two-star hotels having a permit for the provision of hospitality services are entitled to change their operating model to the condo or mixed model if they upgrade to four- or five-star status. The law makes no mention of three-star hotels.
  • Tourist resorts

    The most exclusive hospitality facilities under the Law are tourist resorts, which must be constructed on land having a surface area of 5 to 150 hectares. A tourist resort is comprised of at least one hotel with a capacity of at least 120 five-star accommodation units in a coastal region or a four-star hotel in the north and central regions with at least 60 accommodation units, containing offerings such as wellness centres, restaurants, golf courses, marinas, sport fields, skiing and/or other tourist infrastructure and superstructures operated by one or more legal entities. The tourist resort is ranked as a unique high-quality tourist product, which must operate 12 months a year.
  • Mystery guest

    The mystery guest programme was introduced as a means of quality control and may consist of an individual or a legal entity chosen by the Ministry of Sustainable Development and Tourism to objectively measure the criteria that all four- and five-star hotels must fulfil. The mystery guest has to spend at least 24 hours in the hotel, without disclosing his purpose, and make an evaluation.

3. Tourism development incentives and tourism development zones

With the aim of improving the tourist offering and the development of Montenegrin tourism, the lawmaker envisaged:

  1. the adoption by the Government of Montenegro of an incentives programme to encourage the construction of tourist infrastructure and superstructure, upgrade existing tourist products, improve knowledge and skills in tourism, increase tourism revenue, and more efficiently promote tourist destinations;
  2. the creation of tourism development zones;
  3. the provision of tourism and hospitality businesses in tourist zones as an activity qualifying for state incentives in accordance with the law on state aid.

The beneficiaries of the incentives can be legal or natural persons who operate tourist and/or hospitality businesses or activities connected with tourism and hospitality services.

4. Harmonisation with the Law

Companies and other legal and natural persons:

  1. must harmonise their business with the Law within 24 months as of its entry into force;
  2. operating tourist or hospitality businesses in an illegal facility must commence the legalisation process and provide proof thereof, otherwise their business licence will be withdrawn.
  3. holding a construction permit or that have submitted documentation for the commencement of the construction of a condo hotel according to the previous regulation must obtain a business licence for hospitality activities within 36 months as of the entry into force of the Law.

5. Adoption of bylaws

The lawmaker determined that bylaws will be adopted within one year as of the entry into force of the Law. Until then, the existing bylaws remain valid.
As the new Law introduces many changes, it remains to be seen how they will be adopted and implemented in practice.

This article was authored by Dijana Grujić and Ana Vukčević 

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