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The Difference between an Ordinary Contract and a Contract with a Fiduciary


In a typical contract between two parties, say you and a contractor putting in a concrete driveway for your home, neither party is a fiduciary to the other.  You are each act in your own best interest within the terms of the contract.  In contrast to the typical business contract, the hotel management agreement creates a completely different type of legal relationship between the hotel owner and the hotel operator.

It has repeatedly been held by the courts to create an "agency" relationship.  Operators originally crafted this relationship because they wanted total control of the hotel without ever having to get approval of the owner.  They got this control by being designated the owner's agent to hire all employees, set up all bank accounts, enter into all agreements for the hotel, set marketing strategies, and so on.

Fundamental Rules Apply to every Agency and Fiduciary Relationship


But over hundreds of years, the English common law developed fundamental legal principles that will apply in every agency situation.  For example, an agent is a fiduciary.   A fiduciary has many duties such as a duty of loyalty, full disclosure, and non-competition.

Some of the rights and duties that come with an agency relationship can be waived by a fully informed written consent, and others cannot be waived no matter what.

Every Hotel Manager is the Agent and Fiduciary of the Owner


We believe that virtually every hotel manager is the agent of the owner, no matter what the hotel management agreement says. Some operators like Marriott try to avoid the "agency" label in their management agreements.  Other major brands usually acknowledge they are agents and deal with their obligations in a different manner.  But it is very common for any knowledgeable party to look for and to assert that the hotel operator is an agent.

Morals of the Marketplace versus Fiduciary Duties


If the operator is an agent, then as a matter of law, the operator assumes fiduciary duties (except under the law of Maryland, which Marriott had amended to remove the universal common law provision).  These fiduciary duties go beyond the terms of the hotel management agreement and are stricter than the so-called "morals of the marketplace" that governs typical commercial contracts.  Again, it is common for knowledgeable hotel counsel to assert and seek to enforce these fiduciary duties.

One of those fiduciary duties is the obligation of the agent to prefer the principal's interests (i.e. the interest of the hotel owner) over its own.  This is certainly not a novel claim in agency law, but has not been that common in hotel management agreement litigation to date.