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.