Key Terms When Undertaking a Hotel Management Contract Negotiation

Hospitality Research
July 2, 2018
The Hotel Development Cycle
July 2, 2018
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Key Terms When Undertaking a Hotel Management Contract Negotiation

The hotel management contract agreement is the single most important agreement a hotel owner enters into, especially an owner that is new to the hospitality industry, which is commonly seen in numerous negotiations in Africa. Given the severity of such an agreement, a methodical negotiation process is required. For this reason, hotel owners tend to seek the advice and professional services from experienced hospitality consulting firms, such as HTI Consulting.

In the last two years, HTI Consulting has been involved in over 20 successful negotiations of hotel management contracts throughout the African continent, and working with all major international hotel management companies active on the continent. Over the last decade, HTI Consulting has seen the hospitality industry in Africa mature with the evolution of new agreements present within the market. This evolution within the industry has created a more dynamic negotiation process for hotel management contracts. The industry has seen the emergence of limited service hotels, aparthotels, hotel residence agreements, and third-party management agreements, which has increased the level of competition when undertaking a hotel management contract negotiation in Africa. In addition, the number of international groups that are present on the continent has grown to reach approximately 40 hotel management groups, which again increases the competition. This increased competition favours the owners, as their bargaining power is stronger when undertaking the negotiations of hotel management contracts.

A hospitality consultant, such as HTI Consulting, must be cognisant of the owner’s objectives and goals versus the objectives and goals of the hotel operator under question. A key element to a successful and sustainable hotel management contract is the alignment of such objectives, as both parties ultimately benefit from the hotel being profitable and well structured.

As management contract negotiations have developed, there are particular clauses or terms that a hospitality consultant will scrutinise. Given our in-depth knowledge and experience from successful negotiations of hotel management contracts, HTI Consulting considers a number of clauses that will protect the owner, however, some of the following clauses are vital when undertaking these negotiations, in order to ensure the best possible terms for clients:

  • Length of term and option for renewal
  • Early termination and related penalties
  • Operators’ fee structure
  • Owners’ protection
  • Territorial rights
  • Furniture, fixtures, and equipment (FF&E) reserve

 

Fundamentally, the objective of any hotel management contract negotiation is to structure the contract in such a way that it is beneficial to the operator of the hotel, which is the primary goal of HTI Consulting when undertaking a hotel management contract negotiation in Africa or elsewhere.

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