One of the most dynamic sectors of the world economy is the hotel business. One of the latest reports from the reputable consulting company Cushman & Wakefield says that investment in the global real estate market has increased by 18%. This suggests that there is a huge potential hidden in the hotel business. Therefore, it is very important to analyze the reasons that prevent its development.
Over the past few years, Ukrainian law has undergone a number of significant changes that, in General, have improved the business climate. And made the Ukrainian market more attractive for investors and foreign hotel companies.
Hotels run by international hotel operators have a number of advantages. First of all, this is recognition, strong hotel marketing, centralized booking, loyalty programs, and unified standards.
However, due to the slow integration into the European hotel services market and the specifics of Ukrainian law, international hotel operators, when making transactions in Ukraine, apply strictly foreign legislation. Because of this, they automatically fall under the jurisdiction of foreign courts.
At the same time, when making a sale or any other transaction, the parties must take into account a number of rules and legal requirements, as well as the multi-stage nature of obtaining the appropriate permits.
Agreement on the management of the hotel mainly consists of several documents:
- An agreement of intent;
- The contract on rendering of services;
- Hotel management agreement;
- The agreement on the central reservation.
Review of hotel management agreements
In Ukraine and other European countries, the organization of hotel business management looks something like this: the parties enter into a good old lease agreement. It continues to be in demand by many investors. This is despite the fact that most major international hotel operators prefer a new type of hotel management-a management contract. It acts as an agreement between the management company (or operator) and the property owner. According to it, the management company assumes responsibility for the management of the property, as well as provides guidance, supervision and expertise through established methods and procedures.
The management company manages the hotel on behalf of the owner for a fee in accordance with the agreed terms and conditions agreed with the owner. The agreement must align the interests of both parties.
Over the past 30 years, business owners, for the most part, have become much better versed in the specifics of hotel activities and are more demanding when choosing operators and agreeing on contract terms for hotel business management. Investments in hotel real estate have become more thoughtful and balanced.
Traditional terms of management contracts:
- Guarantees of the activities
Let's explain some points in the agreements:
The term of the management agreement is the term of the agreement. The initial terms usually last from 5 to 20 years, depending on the category and location of the hotel, as well as on negotiations between the owner and the operator. World-renowned operators such as Four Seasons and Marriott may require longer initial contract terms. Often from 30 to 50 years or longer.
Reward. It is provided for performing the duties specified in the contract. These management fees should be structured in such a way as to "inspire" the operator to use the hotel's financial performance.
Capital expenditure. As part of the management agreement, the owner is responsible for providing funds for the maintenance of the hotel in accordance with the operator's standards.
Guarantee. The operator assumes obligations under which the owner of the hospitality facility will receive a certain (necessarily agreed) level of profit or net operating income.
Hotel management negotiations can last from several days to several months. After all, they must meet the needs of both parties in order to ensure an effective and trusting relationship.
The main goal of negotiations is to avoid uncertainty, conflict, and achieve clarity and trust. After all, the ultimate goal of such interactions is to increase the profit of each of the parties.
In solving important issues like competent legal support for all stages of negotiations, I advise you to contact professionals with practical experience in the field of HoReCa. This business segment is replete with specific nuances and needs deep study and knowledge of the profile. I would like to note that Ribas Hotels Group provides a full range of legal support for hotel management contracts and also helps in drawing up a hotel development strategy.
assistant to the Executive Director
Ribas Hotels Group companies.