Industry Update
Opinion Article21 October 2020

HVS Guide to Hotel Management Contracts

By Daniel J. Voellm, MRICS, Managing Partner at HVS Hong Kong and Eunice Wong, Analyst with HVS Hong Kong

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Daniel J. VoellmDaniel J. Voellm
Eunice  WongEunice Wong

Why is this guide more relevant that ever?

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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, it 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 management expertise to their property and partake in the financial upside, unlike a traditional lease model. Leveraging their management expertise, the hotel management contract was rapidly becoming the norm in the industry as a take it or leave it proposition to owners.

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.

As the role of the hotel asset manager stands to become more prevalent around the globe and the COVID 9 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 of various provisions. As we have observed on 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 and demonstrates 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.

For the full guide and survey report comprising around 100 pages please click here.

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Related Document

View Excerpts - HVS Guide to Hotel Management Contracts

HVS Guide to Hotel Management Contracts is an extensive collation and comparison of key terms and clauses of management contracts to across the United States of America, Europe, and the Asia Specific region. This report presents the critical survey results.
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