Hotel Management Agreement Termination

It has generally become very difficult to get an operator to accept a provision that has been terminated without notice, either at the time of sale or by other means. At the same time, operators are more determined to believe that it is not possible to cancel the sale. The combination of all these restrictions can result in actual costs in the sales process (including reducing the price at which the hotel would sell, but for such restrictions). Hotel investments compete with all other forms of investment, especially all other forms of real estate investment. This article deals with the most frequent provisions found in a hotel management agreement that would allow their termination either by the hotel owner or by the operator in contentious circumstances or in undisputed circumstances. The challenge is to develop a compensation mechanism that not only takes into account the hotel`s operational performance under the hotel management contract, but also takes into account the sale value of the hotel. Cross-operations: Some hotel management agreements provide that the operator has the right to make rooms available to members of his affiliated timeshare club when the hotel occupancy for a given period is less than a minimum. These fees must not be paid by the owner, except in the case of incidental costs. It is necessary to create an environment in which owners and operators receive a fair return on their respective contributions. If not, there will be increasing opposition to such leverage. The challenge for owners and operators is to develop a way to allow the termination of a hotel management contract when the operator clearly and proven lacks the expertise or ability to manage the hotel at an acceptable level of profitability.

However, homeowners should review the insurance provisions in their HMA, since sometimes the owner is required to cover or pay for operating interruption insurance and to the extent that the insurance replaces the hotel`s revenues (in turn, check the HMA or USALI if USALI`s turnover is defined), the owner may be required to pay a fee from the proceeds of the insurance. However, most hotel management agreements link the owner`s investment requirement to the operator`s brand standards. However, there are difficulties in practice. For a considerable number of brands, the relevant brand standards are imprecise. Over the past two decades, a number of cases have been tried by the courts and arbitration tribunals, created by an owner who terminated an operator in a manner that was not recognized by the management agreement negotiated by the parties. The legal justification was the Restatement OF Agency. The Restatement of Agency establishes the common law concept whereby a principal (hotel owner) is authorized at any time to terminate an agent (hotel manager) unless the Agency is related to an interest (an economic interest of the hotel operator). In response to this procedure, the industry attempted to circumvent the agency`s concept of law by explicitly excluding any agency in the agreement, but instead the courts examined the actual relationship between the parties and decided that the Agency`s common law exceeded explicit contractual language. In addition, the courts have indicated that the hotel operator must have a specific and current economic interest in the hotel, so that an agency can be coupled with an interest. None of the courts applying the agency`s right to hotel management contracts have established, on the basis of the facts, that the hotel operator had this type of interest. In the absence of available guidelines for sufficient capital-fragmentation or core money to create an interest-related agency, the dissemination agreement may require substantial changes to the industry`s current business model by creating sufficient interest.