Hotel Management Agreements

April 1, 2013

Hotel owner-operator disputes: Marriott v Eden Roc -- what it all means for terminating hotel management agreements

by the JMBM Global Hospitality Group®

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
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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March 29, 2013

When should you choose a brand for your hotel? And when should the brand manage your hotel?

by the JMBM Global Hospitality Group®

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
29 March 2013

Hotel Lawyer on branding your hotel or running it as an independent. When should you brand your hotel and when should you leave it unbranded? How do you know when the benefits justify the costs? And if you decide to brand, should you go with brand management or an independent operator? What are the considerations?

Few decisions are more important. Here is hotel lawyer, Robert Braun to share some insights garnered by our Global Hospitality Group®'s experience in helping clients with more than 1,000 hotel management agreements and franchise agreements.

To Brand or Not To Brand
(your hotel)
by
Robert E. Braun | Hotel Lawyer


Why the hotel branding and management decisions are so important

One of the first decisions in the hotel development or acquisition process can have a lasting impact on the success of the project: whether the property should be branded, and whether that brand should manage the property. The hotel's brand will be a defining part of the profitability, image and value of the hotel, and there may be no other decision which has a greater effect on the future of the property. Similarly, the management of a hotel can enhance the value of the brand, protect the owner, or detract from the value of the hotel -- by as much as a 50% swing.

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February 16, 2013

Dual-branded hotels -- What every owner or developer should know

by the JMBM Global Hospitality Group®

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
16 February 2013


Hotel Lawyer on the Pros and Cons of dual-branded hotels

Dual-branding of hotels in a single structure or complex is quite a trend in the hotel industry and has been picked up by the popular press.

The hotel lawyers in JMBM's Global Hospitality Group® have been working on dual-branded hotels for some time, so we thought we would share some our observations on the pros and cons of this approach.

My partner, Bob Braun, has worked on many hundreds of hotel management agreements and franchise agreements, and has written this article to provide an important update on this subject.

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December 30, 2012

Hotel Lawyer on Repositioning: The New York Times reports 39 percent increase in reflagging

by the JMBM Global Hospitality Group®

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
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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September 19, 2012

HMA Handbook, 2nd edition is released -- Hotel Management Agreements for hotel owners, developers, investors and lenders

by the JMBM Global Hospitality Group®

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
19 September 2012

JMBM's Global Hospitality Group® releases 2nd Edition of The HMA Handbook,
Hotel Management Agreements for hotel owners, developers, investors and lenders

LOS ANGELES--The Global Hospitality Group® of Jeffer Mangels Butler & Mitchell LLP (JMBM) today announced the publication of the 2nd edition of The HMA Handbook, a practical guide for hotel owners, developers, investors and lenders negotiating, re-negotiating or terminating hotel management agreements (HMAs).

Co-authored by JMBM's Global Hospitality Group® Chairman, Jim Butler and Partner and Senior Member of the Group, Robert E. Braun, the 1st edition of The HMA Handbook was released in March 2011 to an enthusiastic readership, evidenced by thousands of requests for the electronic book.

Taken from content available on the Hotel Law Blog, the new and expanded 2nd edition of the HMA Handbook adds 5 new chapters of the practical advice readers have come to expect from JMBM's Global Hospitality Group®, including:

  • 10 tips for negotiating a hotel management agreement
  • An update on HMA litigation and fiduciary duties
  • Case studies on the terminations of the Waikiki Edition and Turnberry Isle hotel management agreements

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July 19, 2012

Hotel Lawyer: Experts share top 5 tips on picking the right hotel operator and brand for your hotel

by the JMBM Global Hospitality Group®

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
18 July 2012

There is nothing more important to the value and financial success of your hotel than selecting the right operator, and getting a management agreement with reasonable terms.

At a recent meeting in Los Angeles, my partner and Hotel Lawyer Robert E. Braun of JMBM's Global Hospitality Group® moderated a panel of hotel industry leaders on some of the key issues owners should consider in selecting a new hotel operator.

The panelists included Patrick Bajdek of Carlson Rezidor Hotel Group, Craig Mance, from Hilton Hotels, Rich Musgrove from HotelAVE, Larry Somma of Hyatt Hotels, and Sam Winterbottom from Grubb & Ellis.

Below, Bob gives his top 5 takeaways from the panel. . .

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July 8, 2012

How to terminate a hotel management agreement: A Tale of Two Hotels -- Marriott's Edition Waikiki and Fairmont's Turnberry Isle Resort

by the JMBM Global Hospitality Group®

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

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
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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March 20, 2012

Hotel Lawyer: How to negotiate a Hotel Management Agreement. 10 tips for a smoother process

by the JMBM Global Hospitality Group®

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
20 March 2012

Hotel Lawyer: Are you thinking about negotiating a new hotel management agreement? Here are 10 things to consider about making your process smoother and more successful.

It seems like hotel management agreements are on everyone's mind these days. Development is coming back. Many owners of existing property are repositioning their hotel properties. And old management agreements continue to expire or occasionally are terminated.

In any event, we have been getting a lot of calls lately to help owners, developers, investors (and some lenders who have become owners) negotiate new hotel management agreements. One of the first questions usually raised is how the process of negotiating a management agreement works, with all the different parties involved, usually in different parts of the country (or the world).

So my partner Bob Braun and I decided to share the process we usually use with clients to streamline the process. Let us know if you have any thoughts or insights on this.

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January 17, 2012

Hotel management contract disputes: Importance of "fiduciary" duties in Owner-Operator lawsuits

by the JMBM Global Hospitality Group®

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
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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September 12, 2011

Hotel Franchise Lawyer: Hotel Franchise Agreements and the 5 biggest mistakes a hotel owner can make

by the JMBM Global Hospitality Group®

By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
12 September 2011

Hotel Lawyer with some tips on Hotel Franchise Agreements and the 5 biggest mistakes a hotel owner can make

Hotels need brands, and brands need hotels. For many years, hotel brands have been growing in importance for the success of hotels in the United States and abroad. The trend toward branding is quite a phenomenon. According to numbers we have seen, In the early 1990s, approximately 40% of the hotels in the U.S. were branded and the balance were independent. Now the number is probably closer to 80% or more of the hotels are branded or brand-affiliated.

The branding is often accomplished by a franchise or license agreement from a company owning the brand. Other times it is accomplished by a branded hotel management company entering into a management agreement with the owner of the hotel, providing both the brand and management for the property.

Although we have spent a lot of time on Hotel Law Blog discussing hotel management agreements, today we are going to focus on the franchise or license agreement arrangements. With more than 20 years' experience working with more than 1,000 hotel management and franchise agreements, we have some perspectives that may be worth considering.

Hotel owners keep falling into the same traps

One of these perspectives of our hotel lawyers is that many sophisticated hotel investors and owners seem to fall into a handful of traps that would be easy to avoid. And this same handful of traps catches the unwary time and again.

So this article focuses on hotel franchise agreements and outlines the 5 biggest mistakes an owner can make when seeking a hotel franchise arrangement. If this sounds all too familiar, you have probably learned these lessons the hard (and expensive) way. If you haven't stumbled on these yet, you won't want to miss the warning flags and the traps they portend.

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