18 September 2014
Hotel Lawyer: New Uniform System of Accounts will affect your hotel management and franchise agreements. Are you ready?
Commencing January 1, 2015, the hotel industry will have a new, significantly revised set of guidelines governing accounting for hotels. That is the effective date for the recently published Uniform System of Accounts for the Lodging Industry, 11th Edition (2014) (“11th Edition”). This is just one of the many things that distinguishes hotels and the hotel industry from every other class of real estate. And the new rules will have a significant impact on a number of matters in hotel management agreements.
Here is a summary of the important changes from one of our industry friends who worked on the 11th Edition, Michelle Russo of hotelAVE.
How will the 11th edition of the Uniform System
affect your management agreement?
Michelle Russo, CEO, Hotel Asset Value Enhancement, Inc. (hotelAVE)
The AHLA issued the new 11th edition of the Uniform System of Accounts for the Lodging Industry (USALI) in July 2014. The process took almost three years and the edition reflects the first time that ownership interests were included in the Financial Management Committee that previously comprised only operators, industry consultants, CPAs and educators. While there are many changes from the 10th to 11th editions, this article addresses what owners and operators need to evaluate to understand the impact of the 11th edition on manager fees and performance tests.
Recommendations for Evaluating Current Agreements.
The 11th edition includes title and definition changes as well as new schedules. For example Total Revenue is replaced with a new term called Operating Revenue. There is also a new schedule that is reported below GOP that includes revenue not generated by the operator (including interest income, other income such as antenna lease income and cost recovery income). You or your lawyer should determine how these changes affect base fees, incentive fees and performance tests. Please note that these changes are effective January 1, 2015. CONTINUE READING →