Each party may choose to terminate the hotel management contract for various reasons: bankruptcy, fraud, conviction, performance standards not met, sale. As hotels become more mainstream active, owners are becoming more mature and vigilant about termination terms and related operating costs. The owners can negotiate the right to terminate the contract when selling the hotel to a third party. This clause gives flexibility to the owner or any potential investor, as it allows the owner to make the investment and sell the hotel safely. The operator is compensated by a right of termination by the owner. The cancellation fee is generally an amount corresponding to the average administrative costs earned by the operator in the previous two to three years (24 to 36 months) preceding the date of termination, “multiplied by” either (i) the rest of the term (years/month) or (ii) a multiple of two, three, five or another as agreed. With a more upscale brand, the operator will be more sensitive not to be “expelled” because it has invested heavily in distribution and marketing to create a high-end brand. Operators will also argue that early termination could harm their brand. Termination without cause allows the owner to terminate the contract without justification. The termination fee provided for in this provision is generally calculated using a method similar to that of termination at the time of sale. Termination without cause or at the time of sale is more common in contracts with independent operators.

The operator`s performance monitoring, mentioned earlier, allows the owner to terminate the contract if the operator does not meet performance expectations and does not use his healing rights. Testing times for most end-of-service clauses begin three years after the hotel opens or the contract begins, to allow the hotel to reach a stabilized level of operation, and the shortfall should normally last two consecutive years. The owner may also obtain a right of termination if the operator does not meet the performance criteria set out in the management agreement or if the operator undergoes changes, for example. B acquisition by a competitor. While greater orientation might indicate a more consistent view of the hotel, it doesn`t necessarily mean that the accommodation would provide better performance. Indeed, a lower orientation could mean that the management company, which has professional management expertise, manages the hotel optimally, even if it does not meet the owner`s objectives. As the graph below shows, these two performance tests are often used together in European management contracts. Notes: (1) The conditions referred to in this Article cover only some of the main features of the Treaty.

Current management agreements are defined by a large number of formats and details. Some contracts become much more complex and contain new terms that are not covered in this article. It is therefore important to review the terms of the contract in detail. Each party should be assisted by independent external legal counsel to deal with these complex legal documents. 2) You will find an overview of operating models (leases, management contracts, franchises) in our article “Decisions, decisions. Which hotel operating model is what you need? ». . .