Hotel Management Agreements (HMAs) play a crucial role in establishing the relationship between hotel owners and management companies / operators. These agreements define the roles, responsibilities, and expectations of both parties, ensuring the smooth and profitable operation of the hotel.
In this article, we take a look the key considerations for both hotel owners and management companies.
Hotel Owners
- Ensuring that the contract aligns the management company's interests with the hotel's profitability. This could be by using performance-based incentives.
- Retaining sufficient control over key decisions. The scope of the management company's authority and matters in respect of which the management company is required to obtain the owner's approval should also be clearly set out in the HMA.
- Including clear termination provisions to allow for a smooth transition in case the relationship does not meet expectations. If fees are performance based, an owner may want a right to terminate if such performance targets are not met. Equally, an owner may want to ensure that a management company cannot terminate without due cause and may wish to include a payment to recover upfront investment if the operator does terminate prior to a certain date.
- Planning for ongoing capital investments to maintain and enhance the property's value. Consider who is responsible for funding and managing capital projects.
Management Companies
- Ensure sufficient operational autonomy to implement brand standards and achieve operational efficiency with flexibility to manage day-to-day operations. A management company may offer and implement central group services for this purpose. A management company should also ensure that the HMA sets out what is needed from the owner in order to enable the management company to provide the services, for example use of the IT and reservation systems, access to certain hotel areas, financial records and procurement systems.
- Secure a fee structure that fairly compensates for management services whilst incentivising high performance. If the fee is performance based, what is required from the management company in order to meet these performance standards.
- Uphold brand standards to maintain the integrity and reputation of the management company's brand and implement robust marketing strategies. If the hotel is part of a franchise chain, the management company should ensure that it has a licence to use the intellectual property of the franchise brand, particularly the name and logo of the brand. The management company should also consider implementing protections to ensure that any use by the management company of the licenced intellectual property, will not infringe the intellectual property rights of any third party.
- Foster a long-term partnership with the hotel owner to ensure mutual success.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.