Six architects cannot agree on Gaffarena’s  ownership... of a ‘part’ of Marks & Spencer 

Taxman claims Gaffarena’s acquisition of emphyteusis is undervalued

The buildings housing the Marks & Spencer store: originally, the lease on the Sliema Wharf houses (the tenement on the right) was signed back in 1878 for 150 years. It will expire in 2028. Mark Gaffarena acquired 10% of that lease
The buildings housing the Marks & Spencer store: originally, the lease on the Sliema Wharf houses (the tenement on the right) was signed back in 1878 for 150 years. It will expire in 2028. Mark Gaffarena acquired 10% of that lease

When the businessman Marco Gaffarena was paid over €1 million by the State to expropriate his 50% share in a Valletta palazzo that housed a government office, the scandal kindled interest in the Qormi family scion’s wealth.

In 2015, Marco Gaffarena was implicated in the Old Mint Street scandal, when he was gifted with a €1 million cash-and-lands deal from the State, in return for what was then the illegal expropriation of his half-share in the palazzo housing the Building Industry Consultative Committee.

To benefit from the irregular expropriation of just his 50% ownership of the building – buildings either get expropriated as a whole, or nothing – he needed willing people inside the executive who could put civil servants under some pressure to cooperate.

But even before that, he needed the information on which property to acquire; which government functionary would mostly recommend the part-expropriation of a private house being rented by the State; and how fast to close the deal – he managed to clinch a second quarter-share right after having been granted an expropriation deal for the first quarter.

Perhaps that is the kind of business acumen that sets Gaffarena apart from others. For, in a court case in which the property owner is objecting to a property tax assessment, a curious acquisition has now come to light.

Ground lease estimate

Architect 1 €146,250
Architect 2 €21,000
Architect 3&4 €80,550
Architect  5 €40,074
Gaffarena's architect €13,500

Mark’s emphyteusis

In May 2015, Gaffarena became the owner of a fraction of a ground lease for an entire row of houses on a side-street off the Sliema Strand. It was just three-fortieths of a lease that had started on 1 January, 1878 – the year the peaceful fishing village, then a summer resort for the wealthy families of Valletta, became an independent parish.

The lease was originally for the houses 16, 17, 18, and 19 Sliema Wharf – the modern-day Strand – which would eventually become the tenement that will house the defunct Carlton Theatre, and later the St Michael’s department store, the precursor to the Marks & Spencer’s brand.

For just €13,500 – a paltry sum – Gaffarena had acquired four-fortieths of that 150-year lease from heirs Stephanie Galea, Abigail Attard, Zachary Galea, Lee Jonathan Borg and Catherine Spiteri. He had already had dealings with the family: two years earlier he acquired their Sliema property on Manuel Dimech Str for €72,000.

But the 1878 lease on the Strand houses was worth just an annual €4.37 in ground rent. By 2028, the ground rent of the successful and popular Marks & Spencer, which had been developed instead of the houses, would be up for a review on its precious Sliema land.

It was a gold mine – and Gaffarena had now become the owner of 10% of that lease. He also acquired from the same sellers, their share of another 1878 lease – just one-twelfth – on the entire row of houses in the street running up the side of Marks & Spencer, from 1 to 45 St Rita Street.

As with every property transfer, the Commissioner for Inland Revenue dispatched one of its architects to carry out a valuation of the first 3/40 share that Gaffarena had acquired for €10,000 (the other 1/40th was acquired separately).

The architect was Carmel Cacopardo, as it happened, the chairperson for the Green Party. As technical expert for the CIR, Cacopardo deemed that the value of the 3/40 share was not €10,000... but fourteen times that value: €146,250.

The Commissioner had no option other than to proceed with the assessment, and issued Gaffarena with a €8,178 bill for unpaid tax.

Gaffarena objected, despatching his own architect, Giorgio Schembri, who insisted the value of each share was €3,500.

But a second architect was appointed by the CIR to make yet another valuation, who arrived at the total value of €21,000. Architect Anthony Robinson said that while the premises were finished to the high standard of a “renowned British high street brand” and was in an excellent commercial location, there were uncertainties and lack of control over the property, so the real open market value of the share was a fraction of the actual amount.

Gaffarena once again objected to the new assessment, leading the CIR to now appoint two more architects, Hector Zammit and Konrad Thake, who arrived at a third figure of €80,550 – a tax bill of €4,236 for the property-rich Gaffarena.

The Commissioner defended its valuations in court, where Gaffarena is now objecting to the tax bill he is being asked to pay.

“We had to safeguard the credibility of the department… because the department is grilled by the Public Accounts Committee. This time the department went beyond the norm, because this case appears to be slightly more sensitive than others, and appointed two architects whom we have absolute faith in, to make a joint valuation,” CIR representative Alex Frendo told the court.

Frendo said both architects, Cacopardo and Robinson, whom the CIR had first appointed to carry out the primary evaluations, stood by their estimates when confronted about the discrepancy in how they had valued the property.

“Having two experts working on a joint valuation gave us comfort on such a sensitive case... sensitive because on the one hand we had Cacopardo’s inflated estimate and [Robinson’s] far lower estimate, which caused a discrepancy in value,” Frendo said.

Architect Konrad Thake later gave his own explanation for the €80,000 valuation, saying that commercial space in Sliema was conservatively estimated at €250 per square metre. The M&S space had a total floor area of 358sq.m on each storey.

Thake therefore multiplied the standard rental value by the floor area, for each of the remaining twelve years of the lease, obtaining the total figure of €1.07 million, or €26,850 for each of the 40 shares on the lease.

Another court-appointed architect, Anton Zammit, however, insisted the two architects were incorrect to impute the value of the retail space being run by Marks & Spencer.

“The principle is incorrect,” Anton Zammit told the court in his report in February 2019, “because they are assuming profits from the rent, and [Gaffarena] is being taxed from the moment of acquisition not just on the value of the share, but also on the revenue he might have from the rent...

“Commercial property must have a return on investment of around 6% on the value of the investment. But this principle applies when the property is freehold and in perpetuity, not when it is a 12-year lease of a small share of the property.”

While Zammit said that at €250 rent per square metre, a one-fortieth share of the lease amounted to €2,240 every year, or €26,880 for the remaining 12 years, at 6% return on investment the 3/40 share would be valued at €40,074.

Mark Gaffarena
Mark Gaffarena

The Gaffarena family

The Gaffarenas were once considered to be supportive donors of the Nationalist Party until they fell out over a justified enforcement action by the Planning Authority, during the Nationalist administration, to prevent them from building an illegal storey on their fuel service station.

When the Old Mint Street scandal struck, planning minister Michael Falzon resigned after it resulted that his staff had gone out of its way to accommodate Gaffarena’s bid to have just his 50% share of the Old Mint Street palazzo, expropriated, and paid with cash and a series of lands that were beneficial to his business interests. Among these was the Sliema shop, then owned by the State, that was beneath the Manuel Dimech Street house he had acquired in 2013. He needed full ownership so as to build an apartment complex.

The controversial expropriation even saw Prime Minister Joseph Muscat filing a court case in his own capacity to have the decision reversed, and prompted an entire overhaul of the Lands Department to be turned into a regulator with a board of governors and ensure full scrutiny of its decisions.

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