Hotel Online
News for the Hospitality Executive


advertisement



How to Negotiate a Hotel Management Agreement.
10 Tips for a Smoother Process



By Jim Butler of the Global Hospitality Group®
Author of www.HotelLawBlog.com
March 22, 2012

Hotel Lawyer: Are you thinking about negotiating a new hotel management agreement? Here are 10 things to consider about making your process smoother and more successful.

It seems like hotel management agreements are on everyone's mind these days. Development is coming back. Many owners of existing property are repositioning their hotel properties. And old management agreements continue to expire or occasionally are terminated.

In any event, we have been getting a lot of calls lately to help owners, developers, investors (and some lenders who have become owners) negotiate new hotel management agreements. One of the first questions usually raised is how the process of negotiating a management agreement works, with all the different parties involved, usually in different parts of the country (or the world).

So my partner Bob Braun and I decided to share the process we usually use with clients to streamline the process. Let us know if you have any thoughts or insights on this.

How to negotiate a Hotel Management Agreement

10 tips for a smoother process

by

Robert E. Braun | Hotel Lawyer, JMBM Global Hospitality Group®

We have negotiated, renegotiated, litigated, arbitrated and advised our clients on more than 1,000 hotel management agreements or HMAs. From that experience, we have distilled 10 suggestions to help Owners and Developers optimize their success in getting a fair Hotel Management Agreement on terms they can live with.

Most of these suggestions are focused on expediting the negotiating process, because time is not your friend if you are an Owner or Developer. You need to complete the entire process, and you can't afford to cave on critical points too quickly just to rush things along. But generally speaking, the faster you can complete a well-orchestrated negotiation, the less the process will cost, and the better your terms will be. Deadlines and delays can put too much leverage in the hands of the operators, and all operators know that. If you want some information about the substance of the deal points you should be negotiating, see the references at the end of this article.

So how do you expedite a Hotel Management Agreement negotiation, while maintaining stamina to win important economic and business points?

Here are our 10 Tips for negotiating hotel management agreements:

1.  Select your team and get access to a virtual data base of "market" terms. You should identify the members of your group who will have the authority to make decisions and will be dedicated to the process. Just as importantly, you need to seek the outside advisors - lawyers and consultants - that can bring you the expertise and sense of "market" terms that you don't have in your organization. Our business and legal experience from more than 1,000 hotel management agreements provides the largest virtual database of hotel management and franchise agreement deal terms in the world.

2.  Identify and prioritize the issues. There are at least 20 or 30 business issues that are "tier 1" or "tier 2" issues that need to be raised and negotiated in a term sheet or LOI. (See "The HMA PRO™ Checklist.") While such term sheets and LOIs are usually "nonbinding," the failure to raise these major issues at this stage will subject you to angry claims that you are retrading if you want to raise them later. It will certainly be harder to accomplish them later - if you can at all - and will delay your process.

3.  Control your own draft of the Hotel Management Agreement. Get the Operator to provide you with a Microsoft Word copy of the form of HMA they propose to use. The Operator may want to "control" the document revisions, but that's not realistic in an age of universal word processing, and we can often conform their HMA to the agreed-upon terms faster and better than they can. In any event, we need it for the process as described below.

4.  Shaping the form HMA to meet your needs. We don't mind starting with the Operator's form HMA. That is generally the accepted custom of the industry. However, after working with you to identify the most important business and legal points, we revise the Operator's form agreement to meet your needs, using specialized redlining software that tracks all changes in the document. Usually, we will suggest the exact language to be used. Sometimes, we will just highlight issues or options for discussion.

5.  Making sure we are all on the same page. Based on our earlier discussions about your priorities and goal, we then circulate a marked up draft of the Operator's form HMA showing all of our proposed changes. This draft only goes to you for your review, followed by a conference call to discuss the agreement and any necessary revisions. We review the document with you, page by page, to get your input and approval for what we have suggested. Most of the changes will be obvious as to their purpose and effect. Some will not be, and we will discuss these so we are all agreed to all proposed changes.

6.  Revise and confirm. After our joint review of the document, we make any necessary revisions to reflect your decisions. If changes are minor, we may not recirculate to our team prior to sending to the Operator. If there are major changes or there is a desire to see the revised language, we may recirculate to gain final approval before sending the document to the Operator.

7.  Send the revised draft to the Operator. The next step is to send the proposed changes to the Operator in the form of the marked up draft we have already cleared with our client. We jointly want to press the Operator for a fast turnaround with its own indication of what changes the Operator can accept or proposed changes to our changes. If at all possible, it is very much to your advantage to keep control of the drafts. If not, we can make it work, but the process is more laborious and time consuming.

8.  Set the all hands meeting. The goal is to get the Operator's markup or written response to our proposals, and then to arrange a "meet until the deal is done" meeting. This usually takes at least one, and perhaps two, working days. The biggest problem for you will be convincing the Operator to make someone available for the entire time necessary. Otherwise, there can be a delay of days or weeks until the follow up meeting is scheduled and the negotiations can be completed.

9.  Location of the all hands meeting. It is not important where we meet. There is a benefit to meeting in our offices in terms of our ability to generate documents quickly, but we can meet at the Operator's corporate offices, their attorney's offices, the Hotel or your offices. The availability of representatives with decision-making ability will probably drive this location, and you should be prepared to travel to meet the Operator on their "turf," if it means they will have the necessary people available.

10. Exchange and finalize. After the all hands meeting, we will circulate revised drafts of the HMA reflecting the decisions. There may be a very small handful of "final issues" to be resolved that we hold to the very end before we give them up or trade them off. But there will be an exchange of documents reflecting the final decisions that should lead to an expedited signing of the HMA. If something goes awry, we will do another meet-until-we-sign meeting.

For more information on hotel management agreements

You will find a lot more information related to this topic on the Hotel Law Blog under the Topic hotel management and franchise agreements. The following are only a few of the resources you will find there:
 
The HMA Handbook, Hotel Management Agreements for Owners, Developers, Investors & Lenders

Checklist for negotiating Hotel Management Agreements/Hotel Operating Agreements - The HMA PRO™ Checklist

Hotel Lawyer with insights on "How to get a great hotel operator"

The 5 questions every owner should ask before selecting a hotel brand

How to get the right hotel operator
_______________________

This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off.
We've done more than $60 billion of hotel transactions and have developed innovative solutions to help investors be successful in bidding for hotel acquisitions, and helping investors and lenders to unlock value from troubled hotel transactions. Who's your hotel lawyer?
________________________

Robert E. Braun is a senior member of the Global Hospitality Group® at JMBM. Mr. Braun advises hospitality clients with respect to management agreements, franchise agreements and spa agreements. He also advises on business formation, financing, mergers and acquisitions, venture capital financing and joint ventures, telecommunications, software, Internet, e-commerce, data processing and outsourcing agreements for the hospitality industry. Contact him at 310.785.5331 or rbraun@jmbm.com.
_______________________

Our Perspective.
We represent hotel lenders, owners and investors. We have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,300 properties all over the world. For more information, please contact Jim Butler at jbutler@jmbm.com or +1 (310) 201-3526.


Jim Butler is a founding partner of JMBM, and Chairman of its Global Hospitality Group® and Chinese Investment Group™. Jim is one of the top hospitality attorneys in the world. GOOGLE "hotel lawyer" and you will see why.

Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.



JMBM’s Global Hospitality Group®
The hotel lawyers in the Global Hospitality Group® of Jeffer Mangels Butler & Mitchell (JMBM) comprise the premier hospitality practice in a full-service law firm and are the authors of the Hotel Law Blog. We represent hotel owners, developers, investors and lenders and have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,300 properties worldwide. For more information about the Global Hospitality Group®, go to www.HotelLawBlog.com. For more information about full range of legal services provided by JMBM, go to www.JMBM.com.
.
Contact: 

Jim Butler
jbutler@jmbm.com
310.201.3526

 

.
Receive Your Hospitality Industry Headlines via Email for Free! Subscribe Here  

To Learn More About Your News Being Published on Hotel-Online Inquire Here
 
Also See: ADA Defense Lawyer: What does the ADA pool lift compliance extension mean to you? / Jim Butler / March 2012

DOJ Turnabout: Pool lift compliance deadline extended to May 15 / Jim Butler / March 2012

5 Things to Remember when Buying Hotel Notes / Jim Butler / March 2012

ADA Defense and Compliance Lawyer: More clarification or confusion on March 15 ADA standards? / Jim Butler / March 2012

ADA ALERT - A Call to Action Before the March 15, 2012 ADA Deadline / Jim Butler / February 2012

GlobeSt.com Interviews JMBM's ADA Defense and Compliance Lawyers: Hotels Handle Pool Lift Regulations / Jim Butler / February 2012

FBI Tips for Hotels; How to spot terrorists and what to do. / Jim Butler / February 2012

ADA Defense and Compliance Lawyer Advisory: DOJ Clarifies March 15, 2012 Mandatory Pool Lift Requirement! (Uh-oh!) / Jim Butler & Martin Orlick / February 2012

Quick! Can You Pass This 3-Question ADA Pop Quiz? / Jim Butler / January 2012

Hotel Lawyer in Los Angeles: ALIS - What's the commotion all about? Closing the conference hotel to outsiders. / Jim Butler / January 2012

Hotel Management Contract Disputes: Importance of 'Fiduciary' Duties in Owner-Operator Lawsuits / Jim Butler / January 2012

Litigation and Disputes Between Hotel Owners and Operators are on the Rise? Why? / Jim Butler / January 2012

ADA Defense Lawyer: New ADA Regulations Kick in Soon. Say goodbye to 'grandfathering' under the ADA / Jim Butler / November 2011

Hotel Lawyer in Washington D.C. - Why the Lodging Industry Will Continue to Do Well Despite Bumpy Markets and More / Jim Butler / November 2011

Chinese Investment in U.S. Hotels: What the Real Estate Professionals Want to Know / Jim Butler / October 2011

Hotel Lawyer in Dallas Listening to the Special Servicers / Jim Butler / October 2011

Hotel Lawyer with Optimism for the Hotel Industry from the Dallas Lenders Conference, Fishing for Solutions 2011 / Jim Butler / October 2011

Updating Service Animal Policies of Your Hotel or Other 'Place of Lodging' / Jim Butler, Martin Orlick and David Sudeck / October 2011

Hotel Industry Alert: Some things to feel (very) good about! / Jim Butler / September 2011

Hotel Lawyers in Phoenix: It's not just me. The market has changed in just the last 60 days! / Jim Butler / September 2011

Hotel Labor and Employment Lawyer Update: Controversial Union Rights Notice Subject to Legal Challenge - Employers Should Not Rush To Post It / Jim Butler & Scott Brink / September 2011

Hotel Franchise Lawyer: Hotel Franchise Agreements and the 5 Biggest Mistakes a Hotel Owner Can Make / Jim Butler & Robert Braun / September 2011

Hotel Labor and Employment Lawyer Alert: The NLRB is making it harder to stay union free / Jim Butler & Scott Brink / September 2011

Tips from Hotel Franchise and Management Lawyers: Beware the Trap of Changing Brand Standards / Jim Butler & Robert Braun / September 2011

Labor and Employment Alert: New Law Requires Employers to Post Employee Rights Notice by November 14, 2011; NLRB Publishes Final Rule for Notification of Employee Rights / Scott Brink , JMBM / September 2011

Hotel Lending Lawyer: What every hotel lender needs to know about hotel due diligence / Jim Butler & Guy Maisnik / September 2011

Hotel Lending Lawyer: What every hotel lender needs to know about Cash Controls / Jim Butler & Guy Maisnik / August 2011

Hotel Lawyers on Terminating Hotel Operators: M Edition Lawsuit Against Marriott Has a New Twist Marriott is Replaced Overnight / Jim Butler / August 2011

Hotel Lawyers on Terminating Hotel Operators: Turnberry Resort Drops Fairmont Flag / Jim Butler / August 2011

Hotel Lending Lawyer: What every hotel lender needs to know about SNDA's / Jim Butler & Guy Maisnik / August 2011

Hotel Lending Lawyer: What every hotel lender needs to know about HMAs and hotel franchise agreements / Jim Butler & Guy Maisnik / August 2011

Hotel Lawyer on the Importance of Brands - Intellectual Property Rights and What They Mean: Family Suites Resorts v. Viacom International d/b/a MTV Networks - a Suit Over Branding / Jim Butler / August 2011

Hotel Lawyer on the Fiduciary, Contractual and Agency Duties of Hotel Brokers - Host Hotels & Resorts LP v. Molinaro Koger Litigation / Jim Butler / August 2011

M Waikiki's Edition Lawsuit Against Marriott International and Ian Schrager - an Owner's HMA Dispute with Marriott and What it All Means / Jim Butler / August 2011

Hotel Investment: Why Asian investors are targeting U.S. hotels for purchase and investment, and what could it mean for you? / Jim Butler / August 2011

Hotel Developers: Why a "regional center" may be the key to financing your next hotel development or expansion. And what you need to know... / Jim Butler / July 2011

How to use the EB-5 Immigrant Investor Visa Program for financing / Jim Butler / July 2011

JMBM Announces Formation of the Chinese Investment Group™ - Hotels, Real Estate, EB-5 Immigrant Investor Visas / July 2011

Hotel Lawyer: How do you know when you should set up a captive insurance company for your hotel? Take our "litmus test". / Jim Butler & Gordon Schaller / July 2011

Hotel Lawyer: What you need to know about the "ancillary benefits" of setting up a captive insurance company / Jim Butler & Gordon Schaller / June 2011

Hotel Lawyer: Are you thinking about setting up a captive insurance company? Maybe you should be. . . / Jim Butler & Gordon Schaller / June 2011

Hotel Lawyer in New York with pre-NYU industry forecast: Sunny with occasional clouds and NO storms on the horizon / Jim Butler / June 2011

Hotel Lawyer with the Executive Roundtable Results; Debt is returning, equity is out looking, and we've passed the bottom of the trough. Why now is the time to purchase a hotel. / Jim Butler / June 2011

ADA Defense Lawyer: How to Quickly Lose Business. (No ADA-Compliant Reservation System) / Jim Butler & David Sudeck / May 2011

Hotel Lawyer with Fresh Perspectives on the Hotel Industry from Smith Travel / Jim Butler / May 2011

Hospitality Lawyers with PKF and Mark Woodworth's Lodging Overview / Jim Butler / May 2011

Hotel Lawyers' Updates on Capital and Debt Markets for Hotels, Transaction Sales Data and Financings / Jim Butler / May 2011

Hotel Lawyer with Updates on Hotel Cap Rates, Values and Transactions / Jim Butler / May 2011

Hotel Lawyer with nuggets from JMBM's Meet the Money® 2011 / Jim Butler / May 2011

Hotel Lawyer: The hotel transaction market is heating up! / Jim Butler / April 2011

Hotel Lawyer with good news! A new federal court decision upholds condo hotel structure. No "securities" involved as structured. Disgruntled condo hotel unit purchaser lawsuit dismissed. / Jim Butler / April 2011

Meet the Money®: Hotel Financing Renaissance is Underway! / Jim Butler / April 2011

JMBM’s Global Hospitality Group® announces publication of The HMA Handbook, a FREE practical guide for negotiating Hotel Management Agreements for Hotel Owners, Developers, Investors and Lenders / March 2011

Buying a Hotel? Don't Buy an ADA Lawsuit or DOJ Investigation / Jim Butler / March 2011

Hotel Lawyer on Hotel Management Agreements: Exculpation Clauses for Protecting the Owner's Assets / Jim Butler / February 2011

ADA Defense Lawyer: How to handle an ADA lawsuit....and How not to do it / Jim Butler / February 2011

Hotel Lawyer: 5 Key Elements for Good Hotel Management Agreement Budget Provisions / Jim Butler / February 2011

How improving fundamentals make 2011 the year of "Great Expectations" for the Hotel Industry / Jim Butler / February 2011

Ask the Hotel Lawyer: 2011 is starting as the year of "Great Expectations" for the hotel industry! / Jim Butler / January 2011

Hotel ADA Defense Lawyer: How a recent ADA case affects all hotels but particularly conference centers and meeting hotels / Jim Butler / January 2011

Hotel Lawyer: So, You Think You Want to Buy a Hotel? For savvy investors, the time could be right / Jim Butler / January 2011

Sheraton Universal Hotel Sale Facilitated by JMBM's Global Hospitality Group® / Jim Butler / January 2011



To search Hotel Online data base of News and Trends Go to Hotel.OnlineSearch

Home | Welcome| Hospitality News
| Industry Resources

Please contact Hotel.Online with your comments and suggestions.