Libyan laws: What hoteliers need to know

Following the troubles that faced Libya in 2011, the country is experiencing a boom as its political and business leaders rush to revive the country from decades of neglect. It is noteworthy that some commentator’s predictions of the country falling into chaos following the removal of Colonel Gadaffi have not proved true and the country is, in large, peaceful, united and ready to do business.

Elections are due to take place in the coming months and what Libya lacks in terms of democratic experience, it makes up for with the potential for growth. The case for tourism into Libya is a strong one — the country has a Mediterranean coastline of almost 2,000 km, some of the best preserved Roman ruins outside of Rome and the appeal of the vast Sahara desert with many well preserved Berber villages and oasis towns. Libya also has a large available work force with estimates of unemployment ranging from 25% to 35% and approximately 30% of its population being below the age of fifteen years old. 

Tourism, in particular the development of major luxury resorts, had started to take off in the final few years of Gadaffi’s regime but many of these projects have since been halted. It is unclear at the moment whether any of these planned resorts and hotels can or will be continued but many hotel operators are hopeful that the projects will be resumed by the government, once elected. 

Every major hotel operator and some hotel owning companies are seeking opportunities in Libya and the legal framework of the country will naturally form part of the decision of whether or how to enter the market.

The legal system of Libya

The legal system of Libya is reasonably well developed and includes detailed laws, which are, for commercial and financial matters, largely derived from the French and Egyptian Civil Codes. Shari’ah law is very rarely invoked in commercial matters but does apply to prohibit gambling and alcohol. The prohibition on alcohol may or may not be removed by an elected government but, in any case, need not be a major issue for hoteliers – one only needs to consider the success of hotels in the Kingdom of Saudi Arabia to know that this need not be a material concern.

Ownership of real estate

Previously, the ownership of real estate by Libyan nationals was restricted to land not exceeding five hundred square meters and, under Gadaffi’s rule, non-nationals were prohibited from owning any real estate. Prior to Gadaffi, land ownership in Libya was open to all nationalities without restriction on size or location. Therefore, it is widely expected that the coming years will see considerable evolution in the real estate market, an asset class strongly regarded in the Arab world in particular. Anecdotally, buyers of other Arab nationalities are already acquiring prime land in Libya and real estate prices are increasing as a result of the renewed vigour in the market.

Protection of intellectual property

Brand protection is essential to hotel operators and this has been protected in Libya for some time and such protection is reiterated in the draft constitution issued by the National Transitional Council. 

Under Libyan law, it is possible to apply for an interim order to stop alleged infringement of intellectual property rights pending a full determination of the complaint. It is also possible to apply for compensation in the civil courts or lodge a criminal complaint against the alleged violator. To determine a matter before the Libyan courts can take many years but, over time, this is expected to improve. Under Gadaffi’s regime there were rules to ensure judicial impartiality but these are likely to be more strictly enforced under the elected government due to the renewed commitment to eradicating corruption.

Application of Shari’ah law

It remains to be seen whether Shari’ah law will become more applicable to the commercial laws of Libya. For example, currently the payment of interest is acceptable where the payment is between two companies. This can be contrasted to the laws of Saudi Arabia where interest is wholly forbidden. Therefore, at present any provisions in hotel management agreements relating to interest should be considered valid and, if this changes in the future, there are ways that such agreements could be drafted to get around any potential unenforceability.

The exclusion of liability may also be an area of law, which could change if Shari’ah principles were applied strictly. Shari’ah principles prohibit the exclusion of liability on the basis that a person is responsible for their actions. Previously in Libya, exclusion of liability arising from ‘ordinary’ defaults could be excluded but liability for fraud or ‘gross’ negligence could not be excluded, as is often the way that hotel management agreements are drafted. 

In a commercial context, if either of the above issues proves to be a material roadblock for a particular deal, the governing law of the contract that the parties opt for may be something other than the laws of Libya. 

Overall, therefore, the legal system of Libya is sufficiently well developed that hoteliers entering the market can do so with a certain level of comfort. Indeed, with the high levels of interest in the Libyan hospitality market, those who move quickly to secure deals with the right owners will be well placed to reap the rewards as Libya flourishes.

Contributed by Helen Hangari, senior legal consultant, DLA Piper