Articles Posted in How to Terminate Hotel Management Agreements

Published on:

4 December 2013

Hotel Lawyer on the jump in hotel development and investment activity.

These are getting to be pretty exciting times to be in the hotel business. Hotel industry fundamentals have continued to improve since the Great Recession and none of the experts see a particular event or reason that fundamentals will stall. Although occupancy growth rate is slowing in some sectors, ADR growth generally continues to drive greater profits to the bottom line.

All this activity creates “management agreement opportunities”

New development is finally coming back, and 2014 may be a break-out year for long-delayed projects. The volume of purchase and sale transactions continues to grow. And owners or investors are seeking to maximize hotel value by repositioning existing assets.

The confluence of these factors is creating a lot of hotel management agreement opportunities for hotel brands, operators and owner/developers.
The 2 most important things affecting the value of your hotel

In the midst of all this activity, hotel developers and investors should remember that two of the most important things they can do with their hotel asset are to

  1. Choose the “right” brand and operator
  2. Negotiate a management agreement that preserves a reasonable amount of value, control and flexibility

And . . . get practical guidance on these issues from experienced veterans representing your interests (and only your interests) at the earliest possible time in the process.

New White Paper on short term management contracts
In case you missed it, Hotel Management recently published an excellent white paper that is highly relevant to all of these hotel management agreement opportunities. The article is called, “The Evolution of Short-Term Management Contracts“. Click here to download a PDF of the article.

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Published on:

1 April 2013

Hotel owners: How the appellate decision in Marriott International v Eden Roc can affect your hotel investment (and why you should understand the law behind the court’s decision)

As we reported in our 27 March 2013 blog, a New York Appellate Division court made it possible for the owners of the Eden Roc Renaissance hotel in Miami Beach to oust Marriott as its operator — despite the long-term hotel management contract between the two, which would have lasted another 43 years. (See “Marriott loses appeal in Eden Roc case: Why all long-term hotel management agreements are now terminable.”)

Setting the stage: owner-operator disputes over hotel management agreements

The relationship between a hotel owner and hotel operator is complex. While the owner bears the financial risk of the hotel’s success or failure and its gain or loss in value, the operator has the exclusive right to manage the owner’s business and is paid “off the top” whether the hotel is profitable or not. The contract between the owner and operator — the hotel management agreement — typically transfers control of the hotel’s assets to the operator.

Hotel owners nationwide are keenly aware of both the benefits and impediments of long term hotel management agreements with branded operators (and nearly all such contracts are long term, often running 40 or 50 years). On the upside, the brand can provide stability, consistent standards, a reservation system, marketing expertise and professional staffing. But the downside can be hard for owners to live with — brands can rigidly incur needless expenses, be unresponsive to market conditions and impervious to the owner’s need to run a profitable business and protect its asset.

While the majority of hotel owners and operators work hard to achieve a balance that is a win-win for both parties, it is easy to understand how things can go badly, fast.

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Published on:

27 March 2013

Hotel Lawyer with a major legal development on terminating hotel management agreements — Marriott v Eden Roc.

Under a New York Appellate Division court decision issued March 26, 2013, virtually all hotel management agreements are now terminable at will by owners. And this result will prevail even against the Marriott-style management agreements that seek to avoid an “agency” characterization of the owner-operator relationship.

The decision was rendered in the case of Marriott International v. Eden Roc reversing the November 7, 2012 decision of Judge Melvin L. Schweitzer, who had granted Marriott’s motion for a preliminary injunction, halting the owner’s ouster of Marriott for poor performance.

In reversing the lower court decision, the Appellate Division succinctly stated that hotel management agreements giving full control to operators are personal services contacts and cannot be enforced by injunction. The court said:

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Published on:

30 December 2012

Hotel Lawyer on the spike in reflagging hotels. It’s often good news for us when the business section of a major newspaper explains what is going on in the hotel sector. (And nice, too, when the paper includes a quote by yours truly.)

The topic? How and why hotel owners reflag properties. The reason for the story: the Great Recession has changed just about everything.

In the New York Times article, Dressing Up for Success, reporter Amy Zipkin says: “According to statistics from Smith Travel Research, a research firm in Henderson, Tenn., nearly 2,500 hotels were reflagged in 2011. While that represents just a 5 percent sliver of all hotel properties in the United States, it was still a 39 percent increase from 2010.”

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Published on:

Two owners terminate long-term hotel management agreements, seize control of their hotels from branded operators, and then settle their litigation

8 July 2012

Hotel Lawyer with an interesting comparison of two significant hotel takeovers — Marriott Edition Waikiki becomes The Modern Honolulu and Fairmont Turnberry Isle & Resort drops Fairmont

Two significant hotel takeovers that started at virtually the same moment last August both settled last week. One is the widely-publicized takeover of the Edition Waikiki in Honolulu and the other is a little-publicized takeover of the Turnberry Isle Resort & Spa in the Miami where the owner terminated a “no-cut” hotel management contract with more than 50 years left to run and expelled Fairmont from the property.
JMBM’s Global Hospitality Group®, together with local counsel Dennis Richard of Richard and Richard, P.A., represented the owner of the Turnberry Isle Resort & Spa in a major victory over Fairmont Hotels & Resorts, in Miami, Florida, by preventing Fairmont from re-taking the hotel. For reasons discussed below, that result is noteworthy when compared to the result in the case between Marriott and the owners of the Edition Waikiki in Honolulu, Hawaii.

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Published on:

17 January 2012

Hotel Lawyer on Hotel Management Agreement disputes between Owners and Hotel Operators.

While there are always disputes simmering between hotel owners and hotel operators, the past few years has witnessed a big increase in the number of disputes ripening to litigation and arbitration. In a recent article, we discussed some of the root causes of this trend and role of the economy. That article was entitled, “Litigation and disputes between hotel owners and operators are on the rise. Why?”

I believe that most owner-operator disputes stem from the owner’s belief that the operator is not operating the hotel in a satisfactory manner and is treating the owner unfairly. A bad economy drives the parties to take action. When discussions fail to resolve the issues, litigation or arbitration claims often result.

Operators as fiduciaries: Why is this important and what does it mean?

As I mentioned in the recent article, some of these disputes pivot on the fiduciary responsibility of the operator. This is an important legal concept for hotel owners to understand. Generally, a hotel operator is the “agent” of the owner. Every agent is a fiduciary. A fiduciary has many duties such as a duty of loyalty, full disclosure, and noncompetition. A fiduciary also has a duty to prefer his principal’s interest (the owner’s interests) over his own interests.

I discussed these important concepts in a sidebar recently published in an article by Jason Freed of HotelNewsNow (a division of Smith Travel Research) in his article, Economic woes drive owner-operator disputes. I have reprinted that sidebar below with a few formatting edits to make the reading a bit easier.

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Published on:

12 January 2012

Hotel Lawyer: Hotel Management Agreement litigation and controversies are on the rise.

I was recently interviewed by Jason Freed of HotelNewsNow (a division of Smith Travel Research) for his article, Economic woes drive owner-operator disputes and it got me thinking.

Hotel lawyers will tell you that there are always disputes going on between hotel owners and operators, and that most of them are resolved at the bargaining table without any legal action.

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Published on:

18 October 2011
Important new court case on terminating hotel management agreements — Fairmont v. Turnberry.

JMBM’s Global Hospitality Group®, together with Dennis Richard of Richard and Richard, represented the owner of the Turnberry Isle Resort & Spa in obtaining a significant decision involving Fairmont Hotels & Resorts. On Friday, October 14, 2011, a Miami Federal District Court denied Fairmont Hotel’s request for a preliminary injunction to be reinstated as the operator of the hotel.

We think this is an interesting and important decision. We believe that this 71-page opinion written by Magistrate Judge Goodman and adopted and reaffirmed by Judge Donald L. Graham is destined to become one of the more important cases in the area of hotel management agreements. Grounded on solid legal precedent — with English common law, a landmark U.S. Supreme Court case by Chief Justice John Marshall, and a well-known line of hotel cases — and public policy, this is one of the best-written, most thoroughly researched and comprehensive decisions in the area.
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Published on:

28 August 2011

Hotel Lawyer update on Hotel owners terminating hotel operators. This weekend has been a busy one for owners tired of dealing with their branded managers. The Turnberry Group dropped Fairmont on Sunday. See Hotel lawyers on terminating hotel operators: Turnberry Resort drops Fairmont flag.

And on the same day, the owners of the M Edition Waikiki seized control of their hotel from Marriott and installed Aqua Hotels as the new operator. See Marriott Loses Trendy Waikiki Hotel as Owner Changes Locks Overnight as reported by Alexandra Berzon and Kris Hudson of the Wall Street Journal.

Over the years we have spent a lot of time on the subject of getting a great hotel operator and terminating bad ones. Owner discontent seems to erupt when operators continue to deliver disappointing results and ignore owner’s requests to drive the top line and manage costs. Then the operators wonder why owners are upset. See for example “Terminating hotel management agreements when things don’t work” and “How to terminate a hotel management agreement when an operator really deserves it!
Marriott loses control over half of its trendy Edition Chain in the pre dawn hours of Sunday morning.

The dispute between the owners of the M Edition Waikiki and Marriott has been a contentious and high profile piece of litigation. For the background of this dispute, an outline of what went wrong, and the contentions of the parties, see “M Waikiki’s Edition lawsuit against Marriott and Ian Schrager – an owner’s HMA dispute with Marriott and M Waikiki Edition lawsuit against Marriott – What Marriott’s General Counsel says“.

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Published on:

28 August 2011

Hotel Lawyer update on Hotel owners terminating hotel operators. Over the years we have spent a lot of time on the subject of getting a great hotel operator and terminating bad ones. Owner discontent seems to erupt when operators continue to deliver disappointing results and ignore owner’s requests to drive the top line and manage costs. Then the operators wonder why owners are upset. See for example “Terminating hotel management agreements when things don’t work” and “How to terminate a hotel management agreement when an operator really deserves it!“.

Turnberry Isle Resort back under founding family’s management and control.

Over the weekend, the owners of the Turnberry Isle Hotel & Resort in Aventura, Florida took control of their hotel and terminated their relationship with Fairmont Hotels.

The resort was created by the Soffer family’s Turnberry Associates in the 1970s, and reacquired in 2006. Turnberry recently completed a $150 million renovation. The hotel had been operated by the Fairmont chain until Sunday, August 28, 2011.

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