The Blog

Hotel Management Agreement Key Money

The possibility is a simple, if not necessary, task. However, things of particular importance – and certainly things that involve considerable sums of money, essential commitments of the parties and dismissals – must be presented in what non-lawyers may regard as painful details. This is one of those situations where the fight you save may be yours. However, guarantees are not as “guaranteed” as key money. They sometimes contain exclusions that deny the guarantee obligation when the profit gap is due, for example, to the loss of the owner, major renovation, non-compliance with trademark standards, unfavourable general conditions and market conditions, as well as other events outside the operator`s control area. The current and expected supply of competitive hotel facilities is an integral part of the supply and demand ratio of a market that has a direct impact on performance. The inclusion in an administrative contract of a territorial restriction (also known as a “protection zone”) assures an owner that no other property bearing the same mark can be opened within a certain radius of the themed hotel for a specified period (ideally for the duration of the contract) in order to minimize, or even anticipate, any form of cannibalization of the same brand or, sometimes, of another brand of the same company. This clause can vary considerably depending on the location, the size of the city and the type of brand. High-end or luxury hotels generally have a territorial containment area for a wider radius and for a longer period than mid-class/budget hotels.

In addition, operators with a larger brand portfolio may be more comfortable excluding certain brands or excluding all brands for an extended period or a declining blocking area. Operators will inevitably seek to put in place a more flexible system so that such a restriction does not jeopardize the development of other brands of operators who are not direct competitors (for example. B, high-end brands compared to low-priced brands). Therefore, when defining the territorial limitation within the scope of the exclusion clause, the marks included in the clause should focus on the duration of the period, as well as on the provision of an independent impact analysis to develop a similar mark, on the performance of the property in question. With the recent consolidation of the hotel industry (the Marriott/Starwood merger, the purchase of FRHI by Accor Hotels), negotiations are increasingly focused on the risk of chain acquisitions, with the view for each hotel part of a hotel chain whose objective is that one or more hotels in the chain be renamed the same brand as the theme hotel. The higher the amount of money from the key injected by the operator, the longer the management fees (as a percentage of total revenue or GOP, etc.) and/or the duration of the contract, as the operator will try to compensate for the initial injections (NPV calculation). Christopher has extensive knowledge in corporate finance, commercial and real estate transactions, hospitality, construction law and procedures. He has extensive experience in managing and structuring investment transactions, acquisitions and endowments of resorts (companies and premises), financings, joint ventures, management and franchising contracts, corporate organization, audits and dispute resolution. Often, the financial incentive comes in the form of a “key sum of money” – the operator combines money with the hotel owner in exchange for a long-term management agreement. Cash is usually paid in or in a short period of time before or after the hotel opens. Sometimes a hotel sale can cause complications in terms of key money.

If, how many times, but not always, a hotel owner is not obliged to repay the key money at a sale (provided the management agreement is maintained), the buyer would likely assume the conditional obligation to pay the keys when he has not received payment of the key.