Key Takeaways

  • Hotel management contracts define the relationship between hotel owners and operators, assigning operational duties to expert management firms.
  • These contracts include crucial provisions such as performance standards, fee structures, owner responsibilities, and termination rights.
  • Ownership and operation are separated in these agreements, often involving non stock corporations formed for ownership purposes.
  • Performance clauses like GOP (Gross Operating Profit) tests or RevPAR (Revenue Per Available Room) thresholds are common.
  • “Non stock corporation example” can apply to hotel ownership structures in public or philanthropic sectors, where profit distribution is not the goal.

If a hotel owner does not wish to manage their own hotel, they must draft up a contract using a hotel management contracts sample. For a number of different reasons, many hotel owners simply do not wish to actually manage the day to day responsibilities of the hotel business. They might not have the right set of skills, but want to hire someone who does. This is where a hotel management firm steps in. If the hotel owner wants to hire a management firm, a hotel management contract will be needed.

A hotel management contract is a legally binding agreement between the hotel owner and the management firm. It should set forth both party’s expectations, responsibilities, and duties. The term sheet should include all necessary provisions related to the exchange of services that explicitly documents the agreement.

Historical Trends in Hotel Management

One of the reasons why hotel management contracts are becoming more and more common is because of the trend of hotel owners delegating most of their responsibilities to management firms. More and more frequently, hotels are being run by franchisees or independent operators as opposed to the actual owner of the hotel. The hotel owner is now thought of as more like an investor of the hotel as opposed to its manager. Many hotel owners have little to no experience running a hotel, and that is why they delegate it to a firm that has expertise in the hotel management industry.

Modern Ownership Structures: The Role of Non Stock Corporations

In today’s hospitality landscape, it is increasingly common for hotels to be owned by entities structured as non stock corporations—especially nonprofits, government entities, or institutional investors. A non stock corporation example might include a university that owns a hotel for student training and community outreach but does not issue shares or distribute profits. These corporations typically reinvest surplus income into operations rather than share it with investors.

In such cases, a hotel management contract becomes essential to delegate operational responsibilities to an experienced firm. The management firm ensures the property meets industry benchmarks while the non stock corporation maintains ownership, mission alignment, and regulatory compliance.

This separation of ownership and management allows hotel owners—whether corporate investors or nonprofit organizations—to focus on capital allocation and strategic growth without getting involved in day-to-day operations.

An Overview of a Hotel Management Contract

The hotel management contract should describe the relationship between the hotel owner and the management firm. The management firm has the responsibility of managing the day to day operations of the hotel, which typically includes hiring and firing employees, dealing with customer service, managing each division of the hotel, etc. The management firm will also be in charge of maintenance, marketing and advertising, and promotion.

The details of the management firm’s responsibilities should all be explicitly described in the hotel management contract. There will likely be negotiations taking place back and forth between the hotel owner and hotel management firm until they both agree and are satisfied with each other’s positions. Once this happens, those duties should be written down in the contract as finalized.

If either of the parties wants to modify the contract at a later date, they are able to do so as long as both parties agree to the modifications. To properly amend the contract, both parties need to document the change in writing, sign, and date the document and then attach it to the original contract.

Key Legal and Financial Provisions in Hotel Management Agreements

A robust hotel management contract goes beyond day-to-day operational delegation. It includes several legally critical components that protect the interests of both the hotel owner and the management firm. Key provisions typically include:

  • Performance Tests: These may measure key financial benchmarks such as Gross Operating Profit (GOP) or Revenue Per Available Room (RevPAR). Failure to meet these benchmarks may trigger owner rights, such as early termination of the agreement.
  • Fee Structures: Management firms are typically compensated through a combination of a base management fee (e.g., a fixed percentage of gross revenue) and an incentive fee based on profitability.
  • Termination Clauses: These specify how and under what conditions either party may end the agreement—such as material breach, underperformance, or sale of the property.
  • Owner’s Approval Rights: Hotel owners may retain the right to approve key decisions, such as capital expenditures, executive hiring, or major branding decisions.
  • Use of Branding: For franchise or flagged hotels, the agreement should clarify whether the management firm may use a particular brand and who holds the licensing rights.

Including these terms in the contract helps mitigate future disputes and ensures alignment of both parties’ expectations.

What Details Should be Included in a Hotel Management Contract?

While different hotel management contracts may stipulate different things, there are some basic requirements that every contract should contain:

  • Names of the parties to be bound. The hotel management contract should include the names of the hotel owner and the hotel management firm. It should describe the location of the hotel and whether or not it is independently owned or part of a franchise. It should also include any other relevant descriptive information about the parties.
  • Length of contract term. The contract should stipulate how long the working relationship between the hotel owner and the hotel management firm will last. Any contract with a term of one year or longer must be in writing. This section can also include an option to renew the contract if both parties wish to do so.
  • Responsibilities of both parties. Arguably the most important part of any contract, the document must explicitly describe in detail the responsibilities and duties of the hotel management firm, as well as the expectations placed on the hotel owner.

While the hotel owner provides the funds to keep the hotel running, most of the other duties will fall on the management company. These responsibilities include:

  • Overseeing employees
  • Preparing budgets
  • Supervise hotel daily operations
  • Maintenance
  • Bookkeeping
  • Ordering hotel inventory
  • Customer service

While most of the duties fall on the hotel management firm, the contract should also outline the hotel owner’s responsibilities, such as making sure the hotel complies with relevant laws, keeping the hotel financially stable, and maintaining insurance.

Special Considerations for Non Stock Corporations

When a non stock corporation owns a hotel, additional considerations apply. These entities are often mission-driven (e.g., nonprofits, universities, or government agencies) and must ensure the hotel’s operations align with their organizational purpose.

Key factors to address in these contracts include:

  • Tax Exemption Compliance: Ensuring that hotel activities do not jeopardize the organization’s nonprofit or tax-exempt status.
  • Public Accountability: Transparency in fee structures and operational reporting may be legally required or expected by stakeholders.
  • Employment Practices: Non stock corporations may be subject to specific hiring practices or employee benefits policies that need to be mirrored in the operator's procedures.
  • Charitable Use Provisions: For example, a nonprofit hospital that owns a hospitality facility may include clauses ensuring a portion of rooms are reserved for low-income families.

A clear non stock corporation example might be a city government that owns a convention hotel. While not profit-driven, the entity must still ensure high operational standards, regulatory compliance, and financial sustainability—all through an effective management agreement.

Types of Hotel Management Agreements

Hotel management agreements are not one-size-fits-all. Depending on the owner’s goals, property type, and business model, the agreement may fall into one of several categories:

  1. Traditional Management Agreement: The operator manages the hotel without assuming ownership. The owner provides all capital and bears operational risks, while the manager receives fees for their services.
  2. Franchise Agreement: The owner licenses a hotel brand and operates the hotel under that flag, often alongside a management contract with a third-party firm.
  3. Hybrid Model: Combines elements of both management and franchise agreements. Common in cases where a hotel is owned by a non stock corporation and operated under a brand.
  4. Short-Term vs. Long-Term Agreements: Some agreements are structured for shorter durations with more frequent review points, while others may span decades, often tied to long-term development or branding strategies.

Each type serves a specific purpose, and legal counsel can help determine which structure best supports the owner's business goals.

Frequently Asked Questions

  1. What is a hotel management contract?
    A hotel management contract is a legally binding agreement in which a property owner hires a management company to operate their hotel, outlining duties, fees, and performance expectations.
  2. How does a non stock corporation relate to hotel ownership?
    Non stock corporations, such as nonprofits or public entities, may own hotels and hire a management firm to operate them. These entities focus on mission fulfillment rather than profit distribution.
  3. What is a non stock corporation example in hospitality?
    A nonprofit university that owns a training hotel or a municipal government that owns a convention center hotel are both examples of non stock corporations in the hospitality sector.
  4. What clauses are critical in a hotel management agreement?
    Performance benchmarks, fee structure, termination rights, branding use, and owner approval rights are essential clauses in most agreements.
  5. Can a hotel management agreement be terminated early?
    Yes, most agreements include termination clauses allowing either party to end the contract under specific conditions, such as consistent underperformance or breach of contract.

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