HMAs in Austria will, in general, be governed by Austrian law as lex situs (law of the place where the hotel is situated) or by German or English law. It could be linked to the conclusion of an arbitration clause (eg VIAC or ICC with the seat of arbitration in Vienna).
HMAs in Belgium will commonly be governed by Belgian law. Disputes under an HMA in Belgium will commonly be settled by Belgian courts, but parties can agree to have those disputes settled by arbitration.
HMAs concerning Brazilian properties are generally governed by Brazilian Law. Except for certain matters that must be governed by Brazilian law, the parties may establish another governing law, in which case it is recommended to establish an arbitration clause to facilitate enforcement of the foreign governing law.
HMAs in Canada are generally governed by Canadian law and the law of the province in which the hotel is located.
This is subject to negotiations. In practice, it is more common to have PRC laws govern the HMA, although some operators are able to get owners to agree to Hong Kong laws. However, if the contracting parties to the HMA are both Chinese entities, no choice of laws will be allowed, and the HMA will be required to be governed by PRC law.
International brands do prefer English law, but Czech law is also frequently used.
HMAs in France will commonly be governed by French law.
HMAs concerning properties located in Germany are often covered by German law but sometimes based on English or US law. German law is sometimes chosen for HMAs in neighboring jurisdictions, when neither owner nor operator is rooted in this jurisdiction.
Hong Kong laws normally govern the HMA.
Either Hungarian law or the laws of one of the parties' country of incorporation is used for HMAs.
We see some different approaches in practice. Although Irish law is common and frequently used, it is not uncommon to see HMAs, or indeed franchise agreements, governed by English law as that would be the traditional preferred choice of governing law of international hotel brands who quite often enter into these contracts using companies incorporated in England.
HMAs concerning hotel businesses in Italy are usually governed by Italian law.
It depends on each case. Japanese laws are sometimes used in HMAs.
Maldivian law commonly governs HMAs, although alternative laws, normally England and Wales or Singapore law, may be agreed to.
Subject to negotiation. US-based hotel operators typically push for Maryland law, which is favourable to Hotel operators, as the applicable law. Often the compromise is to have the above-property service agreements governed by US law and the property level operating agreements governed by Mexico law.
The HMA is usually governed by Dutch law albeit that – occasionally – an HMA may be governed by UK or US law. Usually FCPA or UK Bribery law or similar extra-territorial anti-corruption laws are also applicable.
Since there are very few HMAs in Norway, it is difficult to state what is "common" or usual. Some HMAs in Norway with international chains as operators are governed by English law. Between Norwegian operators and Norwegian property owners, Norwegian law would usually apply.
English law is the most frequently chosen law for governing HMAs in Poland by international brands. However, local entities stick to Polish law.
HMAs in Portugal will commonly be governed by Portuguese law. It would be unusual for any other jurisdiction's laws to be used as the governing law.
HMAs in Romania are usually governed by English law.
The starting point for international operators is that the HMA will be governed by the laws of an alternative jurisdiction (eg English law); however, it is not uncommon for international operators to contemplate agreeing to local law where this is a sensitive issue for owners. This is often the case for government related entities, for example.
In Spain, the legislator has not specifically regulated the legal-commercial trade relations in the field of hotel management, nor has there been a detailed analysis in case law. In hotel management contracts, the principle of contractual freedom prevails; each contract will be the result of what has been agreed by the private autonomy of the parties. Additionally, the provisions of the Spanish Civil Code shall apply on a supplementary basis.
Given the importance of this contract nowadays, an attempt has been made to regulate it by including it in the proposal to amend the Spanish Commercial Code.On the other hand, HMAs in Spain will commonly be governed by Spanish law. It would be unusual for any other jurisdiction's laws to be used as the governing law.
Thai law is most common in HMAs. There are instances where Singapore, Hong Kong or English law may be used and/or preferred by operators, depending on the transaction structure.
The starting point for international operators is that the HMA will be governed by the laws of an alternative jurisdiction (eg English law); however, it is not uncommon for international operators to contemplate agreeing to local law where this is a sensitive issue for owners. This is often the case for government related entities, for example.
HMAs in the UK will commonly be governed by English law, it would be unusual for any other jurisdiction's laws to be used as the governing law.
Hotel managers operating in the US will typically push for Maryland law as the applicable law in the HMA due to the benefits of Maryland law, as applied to hotel operators. Conversely, hotel owners usually prefer the laws of the local jurisdiction, or more owner-favorable or neutral jurisdictions such as New York. New York is a typical compromise jurisdictions in the HMA with respect to above-property service disputes for foreign hotel companies operating in the US, to the extent applicable law is bifurcated.
Australia
Are Hotel Management Agreements (HMAs) common in the jurisdiction?
Yes. HMAs are a common owner/operator structure used in Australia.
If not HMAs, what are the alternatives / what is commonly used?
Other alternative approaches are:
- Franchise agreements – operators enter into franchise agreements with well-known domestic or international hotel chains under which the chain provides a business system, services and licenses the use of the brand and other IP of the hotel chain. The property at which the hotel is operated may be owned by the operator or another party (which may be an entity related to the franchisor). The fee structures may vary and may be made up of a number of components, including royalties for the use of IP, other fixed charges, fees for services and/or fees based on revenue/performance of the hotel business.
- Leases – owners lease the underlying asset to an operator on a long-term basis (under which a fixed lease payment is payable), and the operator operates the hotel business autonomously, or occupies the hotel under the lease, with the HMA regulating the operation of the Hotel.
Is it common or usual for the HMA to be governed by (i) local laws; (ii) the laws of one of the parties' country of incorporation; or (iii) an alternative jurisdiction?
HMAs are typically governed by Australian law. Australia is regarded as a relatively stable legal jurisdiction, such that the sovereign risk and legal risks associated with use of Australia law are limited.
Are there any significant or unusual points to note in respect of tax on HMA payments in the jurisdiction?
HMA payments made to the operator by the owner, and/or any rental payments under a lease of the Hotel property are subject to the Australian Goods and Services Tax (GST).
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Australia
Is there a standard contract period of an HMA?
The duration of HMAs depends in part on the bargaining position of the operator – for major operators, terms of 20+ years are not uncommon. The duration also depends on the nature of the assets, with landmark assets often attracting longer terms.
Is the term usually fixed? Are early exit or similar options included (contractual or implied)?
The term is usually fixed.
It is increasingly common to integrate early exit mechanisms where operators underperform for a sustained period. This is in addition to standard early termination rights, such as for an insolvency event (eg liquidation, receivership, statutory winding up) or where a third party brings any claim or commences proceeding relating to the owner's title to the hotel or land.
Is it usual to include fees / liquidated damages for early termination?
Exit fees for early termination for convenience (ie without cause) or on sale of the property by the owner, and excluding termination in the case of manager default, are common. The level of termination fees/liquidated can vary depending on a number of commercial factors (eg location, type of hotel, market position of brand) and the reason for early termination (ie for convenience vs where the property is sold).
What is the usual position in respect of renewal?
It is common to have renewal periods that are subject to agreement between the parties; options that are exercisable unilaterally are less common. Renewal periods vary depending on the operator and are driven by their own operational needs. Renewal periods as part of an HMA are often negotiated as part of any agreed future capital improvement program for the hotel asset.
Australia
Is there a standard fee structure for HMAs (eg base + incentive)?
HMA fee structures typically comprise a percentage of gross annual revenue (base fees), and a sliding scale percentage of the adjusted gross operating profit, where the operator meets profitability thresholds (incentive fee). The fee structure will depend on various factors including the extent to which the operator or the hotel owner contribute to capital and operational costs of the hotel over the term of the HMA.
What other fees and charges are there (such as royalties, accounting, marketing, license fees, etc.)?
Depending on the parties and type of hotel, marketing contributions and/or fees for use of services such as accounting, software, reservation networks or intellectual property (including branding) may be payable.
Are owners typically required to set aside funds for fixtures and fittings?
Yes. Owners are typically required to make furniture, fitting and equipment (FF&E) contributions for general repairs and maintenance of the hotel, and any other budgeted capital expenditures.
Australia
What is the usual standard imposed on an operator in respect of the operation of the hotel?
Commonly, the standard imposed on the operator is that the operator will use the skill, effort, care and expertise reasonably expected of a prudent operator of hotels with regard to the brand and brand standards of the hotel operator. KPIs and other prescriptive standards are less common, although the inclusion of such standards varies depending on the operator and the consequences flowing from failures to achieve such standards, the operator and the asset.
What performance measures are commonly used in the jurisdiction?
Common performance measures are generally related to performance against an agreed budget and/or Revenue Per Available Room (RevPAR) relative to a set of similar competitors.
These measures are often linked to termination rights for failures to meet these standards.
Is an operator or owner guarantee common in the jurisdiction?
The inclusion of guarantees depends on the identity and structure of operator and owner, including the financial position and assets held by them.
What is the usual position in respect of employees? With whom does the liability for the employees sit?
Commonly, the owner of the hotel employs the employees and the employees take directions under the supervision of the operator. In these circumstances, the hotel owner is liable with respect to:
- minimum wage obligations, work, health and safety (WHS) and discrimination law compliance;
- any penalties, damages, compensation or other order arising of unfair dismissal; and
- vicariously liability for the acts and omissions of employees.
For everyday management, owners usually give operators permission to direct and control its employees.
In some cases, the general manager, and possibly other key employees (eg executive chef), will be employed by the hotel operator.
Is it usual to have a non-compete clause, eg that no other property with that brand can open within a certain radius?
Yes, based on a geographic radius.
Who is responsible for insurance?
The owner is typically responsible for obtaining insurance for:
- the property;
- business interruption;
- workers compensation for employees employed by the owner; and
- items owned by the owner or people other than the operator.
The operator is typically responsible for the following insurances:
- public liability;
- workers compensation for employees employed by the operator;
- motor vehicle;
- employee fidelity; and
- other operating risks it is customary to insure against in the operation of hotels.
Does the HMA give rights in real estate in the jurisdiction?
No, provided that the HMA does not operate as a lease or give rise to a leasehold interest.
Does the HMA need to be recorded against the property, if this is possible in the jurisdiction?
No.
However, where an HMA is not recorded against the property (for example, via a caveatable interest and caveat registered against the title to the property), operators will need to ensure they properly secure their operating rights in the event the hotel property is sold.
Where financing is taken, is it standard to obtain a Non-Disturbance Agreement (NDA) as part of a management or lease agreement?
Yes. The terms of NDAs vary depending on the parties.
What other agreements usually sit alongside an HMA in the jurisdiction?
There may be other associated agreements depending on the operator, which can include:
- IP licensing agreements;
- services agreements for the provision of services (eg accounting, software licensing, access to reservation networks);
- individual employment contracts for the general manager of the operator;
- supply agreements; and
- mortgagee step-in right deeds (on behalf of the owner).
Australia
What are the standard rights / restrictions in respect of transfer / sale of the hotel?
The rights and restrictions applicable to the transfer/sale of the hotel depend on the operator and the asset. For major operators and/or landmark assets, the consent of the operator is commonly required for the hotel to be sold or transferred. Otherwise, the owner is usually permitted to transfer or sell the hotel without the consent of the operator.
When a managed hotel is sold (either asset or share deal), is it usual in the jurisdiction that either the Operator's consent is required for the sale, or that the hotel may only be sold if the HMA transfers with the hotel?
Both. In relation to the requirement for the consent of the operator, see above – it depends on the operator and the asset; however, commonly with marquee hotels operated by international hotel operators, their consent is usually required, and commonly provided if the purchaser agrees to be bound by the HMA following the sale of the hotel.
Whether this is the case with other operators, or if the owner can sell the hotel property with vacant possession will depend on the terms of the HMA.
For taxation reasons, hotels are commonly sold with the HMAs in place, even if these can be terminated after settlement. Taxation advice should be sought as part of any hotel acquisition or disposal.
Do HMAs commonly include a right of first refusal for the operator to purchase the hotel?
It depends on the operator and the asset. Some operators also own hotels and therefore like to have a first right of refusal, while other organizations that are simply operators do not seek such a right.
Is it usual to include provisions which enable the sale of the property with vacant possession ie without the brand?
As above, these depends on the terms of the HMA and the operator. There are different tax consequences arising if the hotel property is sold with vacant possession and taxation advice should be sought as part of any hotel disposal.
Australia
