A dispute over penalty demands and right of access has broken out between the master developer of a $1.5-billion man-made island project in Bahrain and around 60 developers and property owners there.

Lulu Tourism Company (LTC), the master developer of Reef Island off the Manama coast, has been accused by investors of imposing unfair penalties for late completion of work, said a report in the Gulf Daily News (GDN), our sister publication.

However, the company has hit back by accusing investors of failing to meet deadlines and straying from design, layout, quality and landscaping specifications.

The Reef Island Owners Union, formed by investors involved in projects at the development, claimed that in a latest twist a developer was prevented by LTC from taking buses, trucks and equipment to its site to carry out work.

Led by its chairman Farouk Almoayyed, the union claimed in a media briefing yesterday that Reef Island security only allowed the company’s workers to enter on foot carrying their equipment, a claim denied by LTC.

Almoayyed said the dispute centred on LTC seeking fines equivalent to 20 per cent of the value of investors’ land as a penalty for late completion of projects.

However, he blamed project delays on the unrest that broke out in 2011 and subsequently heavy security deployed in the area.

He argued that was considered “force majeure”, or unforeseen circumstances, in the eyes of the law and meant fines should not be imposed.

“The project was launched in 2007 and many investors bought into it because 51 per cent stake was owned by the state, but after the financial crisis of 2008 banks stopped giving credit for at least a year and then because of the disturbances the island was declared a military area for a year and a half and nobody could enter it, thus the delay,” said Almoayyed.

He said as many as 90 per cent of investors were refusing to pay the late completion penalty and accused LTC, which controls the main gate, of using pressure tactics.

“There is a service charge – for cleaning the roads, collecting the garbage, drainage, etcetera – that every community has to pay and that everyone is willing to pay, but this penalty that LTC wants to pocket is unacceptable,” he said.

“The owners are now demanding that the Reef Owners Union take over all the public areas including the gates and security, which LTC is refusing to hand over.”

However, during a media tour on Tuesday LTC general manager Charbel Sarkis told journalists that investors were contractually obliged to pay fines for late delivery of projects.

He also accused developers of ignoring landscaping, plot demarcation and zoning requirements in the master-plan and contracts.

LTC claims it has invested more than $1.5 billion in the island development, which is around 50 per cent complete and has around 3,000 residents.

A 100-villa beach resort is scheduled to open in two months, complete with two sand-floor pools.

The master-plan also includes a five-star hotel, a boutique shopping mall, a medical centre, a marina and yacht club.

However, Sarkis said LTC was not expecting to recoup its investment in the project and claimed the company was spending hundreds of thousands of dinars maintaining the island.

“We have invested over $1 billion and know break-even is not possible,” said Sarkis.

He also alleged that one of the developers involved in the dispute with LTC was responsible for blocking access to the site, forcing workers to carry equipment on foot.

Some people already living there have expressed concern that a bar was being constructed in the middle of the site of a planned lagoon, but Sarkis denied that was the case.

“We are planning to develop a restaurant, which was in the initial plan,” he said.

He added that the lagoon was still dry “because of obstructions from certain developers”.

However, the union Reef Island Owners Union – whose members have invested BD120 million ($316.1 million) in projects there – disputes this.

“They have attempted to build a banquet hall without factoring in the traffic that would result and without permission of the authorities,” claimed Almoayyed.

“Investors were also promised a lagoon, which has been dried out and a restaurant has been built there which is also against the master plan.

“We are asking the company to stick to the master plan and to recognise the legitimacy of the union and deal with us as an interested party.”

Reef Island, spread over 579,000 sq m, was envisaged to consist of 1,217 apartments across 39 residential buildings, 65 villas and 49 chalets.

However, Marina Reef Real Estate Development chairman Ebrahim Abdulaal Alfahad claimed work on its three residential buildings on the island was being hindered by LTC.

He alleged that his company was incurring losses of at least BD50,000 every day on workers’ wages and equipment rent because work was being obstructed.

“How do they prevent me from entering the project which I own?” he asked.

“LTC doesn’t have any court order or any other official paper from the Public Prosecution or other government body.

“We don’t want a direct confrontation with the developer while there are laws and competent judicial authorities specialised in these matters.

“We have filed an urgent lawsuit and it will be considered in three weeks.” - TradeArabia News Service