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