Historic Parnu hotel now in legal limbo

Parnu city government canceled the results of the Rannahotell auction last week due to two law suits initiated by Scandic Hotels Eesti, a member of the Hilton international chain and the current renter of the historic bayside hotel.

On Nov. 25 Parnu city authorities canceled their previous decision on Oct. 30 that had named Memphis Trade as the winner of the privatization auction.

Memphis Trade will get the tender participation fee and the bid money back, officials said.

Parnu authorities said they were interested in a speedy conclusion of the two court cases and in finding a compromise that would satisfy all interested parties.

Scandic Hotels Eesti has been renting Rannahotell (Beach Hotel) since 1993. The hotel, built in 1937 and known as the Estonia sanitarium during the Soviet era, is one of the symbols of Parnu. Renovated in 1993, it started to work as a hotel again in 1994.

The contract Scandic Hotels Eesti signed with the city authorities 11 years ago expires in 2018. The renter is obliged to invest 25 million kroons (1.6 million euros) into the 4,250-square-meter property in 25 years and pay a monthly fee of 24,000 kroons.

Scandic Hotels Eesti claimed they had already invested the 25 million kroons into Rannahotell, most of which was spent on renovation.

But Vaino Hallikmagi, mayor of Parnu, said he was unsatisfied with the investments.

Parnu authorities tried several times to start talks with Scandic Hotels Eesti to change the terms of the rental agreement, but with no result. The city wanted the renter to buy a 24-million-kroon building lease, a license allowing to lease the hotel to a third party, but Scandic Hotels Eesti declined.

The sale of the building lease that had taken place in April 2001 failed as there were no companies interested, and Parnu city authorities decided to sell the hotel property through a public auction.

Two auctions failed for lack of buyers, but the third, completed on Oct. 30, proclaimed Memphis Trade, the only bidder, the winner.

Memphis Trade bid 21 million kroons for Rannahotell.

However, due to the legal complaint filed by Scandic Hotels Eesti in a local court, the purchase agreement remained unsigned. The current renter claimed the sale had violated the rental agreement. Also, the plaintiff's lawyers stated that public auction rules had been breached and the auction advertisement had been published too late.

"The hotel renter claimed the auction had violated his rights, and that the new building owner would not necessarily ratify the rental contract signed in 1993," said Parnu Mayor Hallikmagi, adding that gaps in Estonian legislation made that risk probable.

"We canceled the auction results because we realized that Scandic Hotel Eesti could start a very long and toilsome legal proceeding. They have plenty of possibilities to drag out the court case. At the moment we have recalled all our complaints," said Hallikmagi.

Still, Parnu city authorities may not be out of the frying pan. Memphis Trade, the company that won the auction, said it also intended to go to court.

"We will appeal the auction results cancellation. We have not yet put the complaint together, but apart from the bid money and the participation fee, the city authorities will pay us millions of kroons," said Urmas Kink, Memphis Trade board member, adding that the company has already incurred significant expenses due to the hotel auction.

Kink was unsure how long could any possible legal action last.

Memphis Trade OU, an Estonian company with a capital stock of 40,000 kroons, the minimum required to start a company in Estonia, was established especially for the Rannahotell auction.

"Our plan was to keep the hotel, preferably with the same operator, Scandic Hotels Eesti, because they have the necessary experience," said Kink.

According to Kink, Memphis Trade would change the rental agreement so that rents would increase. "The current rent is ridiculously low," said Kink. "They pay some 4 kroons per square meter. It's no wonder why they're trying to do their best to keep the city as the principal owner."

Mark Soosaar, a famous film director and member of the Parnu City Council, said the very concept of the Rannahotell sale was wrong from the start.

"The building is practically a joint heritage for European peoples. First of all, we have to think how to preserve and protect this pearl of Estonian architecture," said Soosaar.

Parnu's mayor said the city authorities' reputation had been damaged in the media crossfire surrounding the sale.

"We first planned to sell the property and invest the money into some other project in Parnu, but the outcome is that we will have a deficit this year," said Hallikmagi.