In the past, owners could be tied to management contracts for decades and early exit could be expensive. This is one of the areas that has eased considerably. For example, Crescent Hotels and Resorts offers termination without punitive damages. “Our contracts are typical of five years with a five-year option,” Cohen says, adding, “We`ve probably run 500 hotels in our career and only less than five times the owners have exercised that termination [right].” For the owner who negotiates an advantageous contract, “the most effective thing is to have the language of performance in the management agreement and to have regular methods of reporting and communicating with the management company, either directly or with an executive,” explains Mr. Squires. It recommends a careful formulation of the language of representation. “They generally want the hotel to reach a market share threshold vis-à-vis its competitors and a financial objective related to past performance and market conditions.” The economic challenges of the millennium have led to significant changes in the way businesses operate. For example, hotel management contracts are evolving. In this changing climate, what do hotel owners need to know about negotiating the most efficient management contracts? The agreement contains the operator`s main general conditions, to which the hotel management package will be developed at a later date. Despite their non-binding nature, it will be difficult to renegotiate the main conditions after the signing of the agreement. If, in this preparatory phase, it is not a matter of negotiating and solving problems, both parties may find themselves in an unfavourable situation when the package of management agreements arrives. This was not the case 20 years ago, when the basic fee rose to 3.5%. Although management contracts are still in the operator`s favour, Mobar says there is a broader assumption of barriers to profit because “owners are trying to get more for their money.” While operators still have the upper hand, the gap narrows.
Part of this amount is that more and more hotel management companies are competing for a limited number of assets. With a focus on management agreements, understanding of key concepts and potential pitfalls is increasing. While this article focuses on some issues that are important to hotel owners and operators, the list is not exhaustive. It is therefore recommended that specialized advice be obtained at the beginning of the negotiation process in order to coordinate the interests of the owner and operator and to ensure a successful long-term contractual relationship. Not all performance tests are equal. In a sample of South American hotels in the HVS study, most hotels conducted performance tests related to the budget/profit and performance of RevPAR, known as the “collective test.” A smaller percentage is related to GOP/AGOP/NOI performance relative to RevPAR`s budget performance or performance relative to the competitive rate. But beyond certain clauses or formulations, the most important element in negotiating the right management contract is to communicate the owners` objectives and objectives and to achieve harmonious coordination between the owner and the manager. In my experience, when owners and operators send the end of a hotel management agreement, there are always things that could have been done differently. In this article, I will identify a number of the most common problems and, in order to keep it balanced, I have identified an equal number for owners and operators. Paul Breslin is Managing Director of Horwath HTL`s Atlanta office. Paul, a 30-year-old hospitality veteran, ranges from operations to asset management, branding and valuations, valuations and valuations.
He and his team of professionals have successfully advised on boutique hotels, limited and full hotels and luxury hotels.