The STEM/MARK agency conducts regular surveys of how people live in different locations around the Czech Republic, what issues they deal with and what causes them to be happy. Prague is midway through the election term, which is why STEM/MARK asked Prague citizens what they thought the current leaders had accomplished and what they should accomplish by the end of the election term.
The City has been engaged in a several-year litigation over the rent for the Skoda Palace, where a part of the city administration is seated. The City Hall considered the rent as excessive and the lease contract, concluded under former mayor Pavel Bém, as unfavourable for the city. This week, an agreement has been reached with the owner of Skoda Palace, which 28% of Prague citizens appreciate, according to the agency.
The new agreement has normalised the commercial relations between the parties and change a rather non-standard contract into a balanced arrangement that better protects the interests of both parties. As the key benefits of the agreement survey respondents consider a substantial decrease of the rent (42 percent) and an end of litigations and related losses (30 percent). The situation is perceived as a win-win.
Every fifth inhabitant of the city appreciates a reduction of public transport prices and its good functioning. Prague citizens are happy about well-groomed greenery, improvements in the traffic situation, whether by repairs or new infrastructure construction, and cleaner streets. People also perceive a relatively low crime rate, efforts to curb casinos, emergence of new sport facilities, playgrounds, cycling trails, and the introduction of digital displays at public transport stops.
The STEM/MARK survey was conducted by phone among 401 respondents representing inhabitants of Prague older than 18 years.
Prague is to get a 860-million discount. The city administration’s landlord will achieve better terms with banks.
“I am happy we are meeting here today. The Skoda Palace case seemed to be a never-ending story.” This is how Prague Mayor Adriana Krnáčová welcomed reporters in her residence on Wednesday. Prague leased the palace in 2006 during former Mayor Pavel Bém’s term in office for 20 years for approximately 4.5 billion CZK. Back then, media pointed out the non-standard deal that seemed favourable only for the owner of the property – well-known real property tycoon Sebastian Pawlowski. It appeared as such also to succeeding political leaders who tried to normalise the relationship with the landlord to the benefit of the City.
Mayor Krnáčová has now announced that after several years of dispute and unsuccessful litigation, Prague eventually agreed with the owner of the palace, Copa Retail, on a reduction of the rent. The City will newly pay 33% less for the lease of the building in Jungmannovo Square, which represents a saving of approximately 860 million CZK by 2028. In exchange, Prague gave up on a purchase option for the palace that it could have exercised as of 2021. The Euro weekly talked to Abigail Schaeffer, a member of the Board of Directors of Guyana Holding, the owner of Copa Retail, about the Skoda Palace owner’s perception of the agreement and the more than three-year dispute with the City Hall.
Have you achieved what you wanted?
What we wanted was to normalise our relationship with the tenant. If the City Council and Assembly approve the agreement, we will have achieved our objectives.
Why has it taken so long? You have been offering the City Hall basically the same deal as you have now agreed upon.
The City achieved better terms than what we had originally offered. Only the current City leadership was reasonable enough to sit down at the negotiating table.
To what extent is the agreement more favourable for Prague?
The initial offer was for a 20% discount. The final agreement is a 33% discount. The City negotiating team worked really hard to achieve this deal.
The City is supposed to save some 860 million by 2028. Are you ready to trade 860 million for peaceful relations with your tenant? That does not sound like a good deal.
That’s not how it is. I’ve done real estate deals for over 2 billion Euro throughout Europe and I’ve never seen a contract with such non-standard lease clauses like the Skoda Palace lease agreement. It was these clauses that caused the City to pay a higher rent than usual. We are providing the discount because we are removing the elements from the agreement that increased the cost and risks for us and our financial partners. The rent had to be higher because of those provisions.
Are you talking about the purchase option for the palace as of 2021?
Not just that. There were other such provisions.
What were the other provisions?
What was important for us were restrictions on financing the property. The lease agreement included a provision that capped the owner’s debt on the building. This forced us to keep a relatively complicated corporate structure that increased the price of financing. Another provision, for instance, allowed the City to make arbitrary changes in the building and we would have had to accept it without proof and accept lower rent. We must say the City has never abused this right. Another provision, for instance, prohibited banks to collect the rent directly from the City.
Now, that the City abandoned the purchase option, you can sell the building. Are you going to do that?
We could have sold the building at any point. The building changed hands several times in the past. Look, the option meant nothing else than that as of 2021, the City could ask us to sell the building to them. The lease agreement did not stipulate any method of calculating the price, so it is likely that if Prague had decided to purchase the building, we would have ended up in court again in five years because of the price. The city can purchase the building at any time. They don’t need the purchase option for that.
The Skoda Palace is burdened with loans amounting to roughly three billion crowns, correct? If you are not selling it, are you going to refinance the loans? Otherwise, the whole agreement on your part does not make sense to me.
I can’t tell the exact amount of debt but yes, after the amendment to the lease contract, we will achieve much better credit terms. We are not planning to sell but to refinance.
So, you really did not exchange 860 million for peace … that was hard to believe.
Indeed. It was very important for us that City leaders negotiated commercially.
How exceptional of an experience has it been, to keep trying for three years to convince various political leaders to reach an agreement?
Very exceptional. We could not understand why our partners were reluctant to take what they wanted and what we were trying to provide.
Why did you want to extend the contract by 1.5 years?
That’s how it works in my business. I wanted a 20-year extension, but the city declined.
Prague, 1 June – Prague leaders agreed with the owner of the Skoda Palace, Copa retail, on a discount on the rent amounting to CZK 860 million, as Mayor Adriana Krnáčová (ANO) and Copa retail director Abigail Schaeffer told reports today. The company will provide a discount on the total amount that was originally supposed to reach 4.4 billion over a 20-year lease. At the same time, Prague agreed to give up its purchase option and to extend the lease contract by a year and a half. Prague originally leased the palace, which serves as the seat of most of the city administration, from 2006 to 2026.
“In 2003, the City Hall could acquire the building but several years later, it leased it for 4.4 billion. As the head of Transparency International I challenged the public tender but unsuccessfully. The only possible solution was to negotiate. Nonsensical criminal proceedings initiated by our colleagues from TOP09 and their standpoint made things last longer as they engaged Prague in pointless litigation in 2003 that Prague eventually lost,” said Krnáčová.
According to Councillor Radek Lacko (ANO), the city and the company agreed to put a cap on the inflation clause at 3.5% annually and Prague is abandoning a purchase option. The rent will newly be paid in euros instead of Czech crowns. “The lease is going to be extended by a year and a half,” Lacko said. The lease contract is to expire in June 2028.
Source: ČTK, ECHO24.cz
- The Prague Mayor was selecting lawyers for the dispute over the Škoda Palace upon the counterparty’s recommendation.
- “To negotiate an agreement, we need both of the parties to be represented by good and competent lawyers,” says Abigail Schaefferová, who has recommended the lawyers to the Mayor.
- In an interview for Hospodářské noviny, she also says that she regards the matter as a misunderstanding.
A criminal complaint is directed against Prague Mayor, Adriana Krnáčová (ANO), and the opposition wants her to step down. All of this because of e-mail conversation with Abigail Schaefferová, Director of Guyana Holdings that also holds Copa Retail, the owner of the Škoda Palace in which most of the Municipality officials are working.
Although Prague is in a dispute with the company, in the e-mails Mrs Krnáčová and Mrs Schaefferová were arranging the selection of lawyers for the capital. “To negotiate an agreement, we need both of the parties to be represented by good and competent lawyers,” says Mrs Schaefferová, who regards the matter as a misunderstanding.
E-mail conversation between you and Mayor Krnáčová has surfaced. The Mayor writes in it: “As has been agreed, we will select a law firm (from the recommended ones), to facilitate our tentative agreement.” On what, then, did you agree?
No agreement was negotiated. It was apparent that the Mayor wanted to achieve a solution. She is the first leader of the City to express will to tackle this matter. Her predecessors refused to talk to us and were hiding behind court proceedings. We have been openly saying all the time that we are ready to grant Prague a discount on the rent, amounting to CZK 500 m, for the following 11 years for which the contract is running.
The City is paying a higher rent than it would have to, and only because the lease agreement contains provisions that are not quite standard. The rent is higher because of this. This agreement was not, however, signed at the time when Copa Retail was taken over by Guyana Holdings. It is a legacy from the past.
So you acknowledge that the contract is disadvantageous for the City?
The City has terms and conditions that it requested itself, and is paying for these terms and conditions.
But also according to you, it should pay less…
You are saying that you did not achieve any agreement, and yet you were talking about some conditions. What are these conditions? Do they also include the CZK 500 m discount?
I do not want to go into too much detail now. We have to wait for the outcome of the talks. The Mayor requested some other things that should be part of the agreement and with which we agreed in principle, but this is a process that has to happen first of all. But consultations with lawyers, negotiations must follow. I have never seen any talks that were the same at the end as the original idea.
Is the CZK 500 m discount final? The City’s preceding representation wanted 47% off, which is more than you are offering now.
Their expectations were unrealistic.
But you are willing to go down by more than CZK 500 m?
We can offer a discount on the balance of the rent that the City will pay us. We cannot give them a discount on what has been paid. So as time passes, it may happen that it will be less than CZK 500 m, because we will not refund once paid rent to them. The City therefore must start to negotiate to save the CZK 500 m.
In your media statement you say that you regard the whole affair as a colossal nonsense. But doesn’t it appear strange to you when you are discussing with the counterparty its legal representation and recommending it the law firms that it should select?
The City has selected for its counsel Mr Zoufalý, who does not appear in any list or yearbook of good lawyers which are available to us. His conduct in the negotiations was obstructive and it appeared to us that he was more of an obstacle for his client. I told the Mayor that I thought that we would not be able to achieve any solution if the City continued to be represented by Dr Zoufalý. To negotiate an agreement, we need both of the parties to be represented by good and competent lawyers.
Why did you offer her that you would pay for legal services for Prague?
I was aware that Prague would incur additional costs. New lawyers would have to study the case, carry out a legal analysis, and participate in long negotiations. In addition, in negotiating an agreement you always risk that no agreement is reached in the end. To avoid Prague tax payers having to pay for legal services, we reasoned that it would be possible to cover the costs incurred in legal representation should the City so wish. Which they did not. But also for us to avoid the risk that the City would continue to be represented by a type of lawyer such as Mr Zoufalý was, we arrived at the conclusion that it would be good to have, on the part of the counterparty, legal representation that would be competent and behave realistically.
You have said that you were seeking a law firm for Prague so that you would reach an agreement. If the same conversation of somebody else leaked into the public, wouldn’t it make an impression on you that you want to select a firm that would achieve an agreement advantageous for you rather than the City?
These law firms would have never known that I recommended them. They would simply never find out.
Do you regard it as a mistake when looking back?
No. But I regret that such a big misunderstanding has occurred.