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“.
Self help to seize control of the hotel
Over the weekend, in the early hours of Sunday morning, the owners seized their hotel by installing new management and changing the signs and locks on the hotel to reflect the new name, the Modern Honolulu. As Marriott’s Edition chain only had two hotels — the one in Waikiki and one in Istanbul, Turkey — Marriott lost half of its Edition hotels with this takeover. This has to be a big blow to the struggling new brand.
What does this mean for the Edition brand?
In our opinion, the public litigation against Marriott and Schrager for breach of contract, fraud and mismanagement has to be a big black eye. Whatever the legal outcome, operating a functionally new and redesigned hotel at 31% of the competitive set is a dismal record for anyone, much less Marriott.
A lot of people have been wondering who would want to invest in an Edition hotel with all this terrible publicity. Apparently, Marriott is worried about that too, and the Wall Street Journal reports that Marriott is investing $400 million of its own money in Edition locations in London and Miami Beach, which will open over the next two years or so.
It will be very interesting to watch the progress on the litigation filed in New York and what else develops on this situation.
In an unrelated proceeding involving another owner termination of a branded operator, Turnberry Isle Resort’s reflagging was carried as breaking news by the Miami Herald on August 28, 2011.
Other articles on Hotel Law Blog about terminating hotel management agreements
Ritz-Carlton breached contractual and fiduciary duties under hotel management agreement giving rise to free termination, $10.3 million in damages plus attorneys fees. When will hotel operators “get it”?
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