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News for the Hospitality Executive |
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Marriott Loses Appeal in Eden Roc Case Why all long-term hotel management agreements are now terminable |
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here By Jim Butler and the Global Hospitality Group® Hotel Lawyers | Authors of www.HotelLawBlog.com March 27, 2013 Hotel Lawyer with a major legal development on terminating hotel management agreements -- Marriott v Eden Roc. Under a New York Appellate Division court decision issued March 26, 2013, virtually all hotel management agreements are now terminable at will by owners. And this result will obtain even against the Marriott-style management agreements that seek to avoid an "agency" characterization of the owner-operator relationship. The decision was rendered in the case of Marriott International v. Eden Roc reversing the November 7, 2012 decision of Judge Melvin L. Schweitzer, who had granted Marriott's motion for a preliminary injunction, halting the owner's ouster of Marriott for poor performance. In reversing the lower court decision, the Appellate Division succinctly stated that hotel management agreements giving full control to operators are personal services contacts and cannot be enforced by injunction. The court said:
Termination may or may
not be "free" Why Marriott v Eden Roc
is particularly important for hotel owners About the same time we successfully terminated the Fairmont management agreement for the Turnberry Resort last year [see How to terminate a hotel management agreement: A Tale of Two Hotels -- Marriott's Edition Waikiki and Fairmont's Turnberry Isle Resort], the owner of the Honolulu Edition lost a similar suit in the New York Supreme Court and filed bankruptcy to avoid reinstating Marriott as manager of the hotel. If the lower court in the Edition case had followed the law as determined by the federal court in our Fairmont v Turnberry case or the law as clarified by Marriott v Eden Roc, there would have been no need to file bankruptcy. What it all means -- all
long-term hotel management agreements are terminable We believe the best way to resolve differences with an operator is through a dialog and a process of give and take to resolve the differences. But we have seen a number of cases, where patient owners have tried everything they know how to do and are still frustrated by non-responsive operators. Thus, when all else has failed, owners may be able to terminate the hotel management agreement and take back the operation of their hotels. This will usually be in the face of a contract that contains many paragraphs in all capital letters, stating that the contract is not terminable and that the owner waives all of its rights to terminate. Notwithstanding this contractual boiler plate, virtually every hotel management agreement either (a) creates and agency relationship between the owner and the operator, or (b) establishes a personal services contract for the operator's services. Despite any provision to the contrary in such contracts, in most jurisdictions, there is such a strong public policy developed over more than a century that the non-termination provisions will be struck down. Except in unusual circumstances, an owner always has the power to terminate an agency or a personal services contract. If there termination is wrongful, the owner will be liable for damages. But the law simply will not enforce the agency or personal services contract against the owner. For a full copy of the Marriott
v Eden Roc decision. Do you need help with a
hotel management agreement? Our business and legal experience from all these deals provides the largest virtual database of hotel management and franchise agreement terms in the world. JMBM can help you confidently establish reasonable "market" terms for your deal. With our HMA PRO™ process, we can help you recruit the right brand and get a management agreement you can live with. It is always best to start out with the right brand and operator for your hotel ... and an agreement with fair terms you can live with. But when you don't have that advantage and the situation becomes unbearable, what can you do as an owner to renegotiate or terminate a long-term, "no-cut" management agreement? We have developed some very effective tools for dealing with long-term hotel management agreement problems. Clients really value our more than 20 years of business and legal experience to help them evaluate the situation, identify alternatives, develop successful strategies and execute them. The right outcome can unlock millions of dollars of value. Articles about terminating hotel management agreements
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__________________________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 unlock value from hotels. Who's your hotel lawyer? Our Perspective. We
represent hotel lenders,
owners and investors. We have helped our clients find business and
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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 [email protected] 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. |
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Contact: [email protected] 310.201.3526 |
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