Why is this guide more relevant that ever?
Among all the many peculiarities of the hotel industry, the hotel management contract is likely the most unique. A binding contract between owners and operators which has evolved over almost six decades. In fact, the first hotel management contract was signed for the Hong Kong Hilton, which opened in 1963.
The management contract structure allowed hotel companies to expand rapidly and become what is nowadays known as “asset light”. Of course, hotel owners stand to benefit in that they can bring in sound management expertise to their property and partake in the financial upside, unlike a traditional lease model which preceded it. Leveraging their management expertise, operators pushed for the hotel management contract to rapidly become the norm in the industry as a ‘take it or leave it’ proposition to owners.
Over time, the hotel management contract has become an intricate web of terms and clauses that defines the relation between owner and operator. The balance of power in this relationship needs to be carefully established, which was, and unfortunately still is, not always a given. Owners need to be on their toes and bring in expert advice from consultants and lawyers to navigate the complexities of an agreement which can bind them for decades to come.
As the role of the hotel asset manager stands to become more prevalent around the globe and the COVID-19 pandemic ushers in a new era, this is a space that needs to be closely watched. These testing times will cast a shadow on management contracts and call for change on multiple provisions. As we have observed in numerous instances, a strong property that is appealing to operators can secure significantly more favorable terms than a “standard” hotel. After all, gaining market share to impress investors may be more important to some operators than securing strong contracts.
This year’s HVS Guide to Hotel Management Contracts by Daniel J Voellm and Eunice Wong gives insights into prevalent terms and how contracts have evolved in the last six years. This guide provides a global reference for owners to understand the language of hotel management contracts while demonstrating our extensive hands-on experience. The authors provide insight into the five principal sections of a management contract: term and renewals, operator management fees, performance test, budget and expenditures, and termination of the contract by owner. Key money and indemnification are also addressed.
We hope this guide can serve the industry as a reference to make better decisions, effecting better and more balanced relations between owners and operators.
- The full guide and survey report comprising around 32 pages can be purchased for US$2,000.
All reports are available in PDF (soft copy) only. A personalized copy of the report will be sent.