Hotel Management Agreement
Litigation is on the Rise.
lawyers will tell you that there are always disputes going on between hotel
owners and operators, and that most of them are resolved at the bargaining
table without any legal action. Some
disputes advance into litigation with the filing of a complaint, and others go
to arbitration. The choice
between litigation and arbitration is normally determined by the terms of the
management agreement. Operators seem to prefer arbitration and they have pushed
to create a trend to arbitrate. The
arbitration is "private" and tend to be missed by the press and are
conducted in secrecy.
number of owner-operator battles has really escalated over the past few years. This is
not just a matter of these disputes getting more media attention. There are
a lot more disputes. What you see in the press is just the tip of the iceberg.
The Root Cause of
While each dispute has a specific cause or
issue, at the heart of the matter you will find the belief that the operator is
not operating the hotel in a satisfactory manner and is treating the owner
don't want to give up their lucrative management agreements and many of them
can't or won't change their actions to satisfy owners who bear all the
financial risk of the hotel investment.
like these, owners may find themselves dipping heavily into other funds to meet
negative operating cash flows or mortgage payments. Many face
foreclosure -- and loss of their entire investment -- with the operator's
sub-par performance. They feel
cheated when operators continue to take all their money "off the top"
(from gross revenues) and the operators won't cooperate to improve the
The Role of the Economy
Clearly, bad economic times create a lot
more friction between hotel owners and operators. When
everyone is making lots of money, most people don't feel desperate to correct
every wrong. When hotel
operations hit the skids, and owners have to write checks to keep the doors
open, they want fast and responsive cooperation on critical issues. Our
current economic "recovery" is one of the slowest in history and as a result, the recovery
in the hotel industry has been very uneven depending on the hotel location,
property type, local market, etc.
hotels are performing better, friction between hotel owners and operators tends
to ease; but for
many, the improvement is neither big enough nor fast enough to quell the
owner's dissatisfaction over operator shortcomings. As a
result, the current trend of hotel management agreement disputes will continue to
increase for the foreseeable future.