Hotel Management Expert Take On Rising Owner Operator Lawsuits

An operator and hotel management expert may be faced with performance issues in economic downturns that can affect their relationship with the owners and investors of the lodging property. This may be a result of when it is perceived that the operator gets all of the benefit through compensation and incentives, while the financial risk is borne entirely by ownership regardless of whether the hotel or resort makes money. There is an interesting article at Hotel-Online by Jim Butler with JMBM, that discusses the rise in these types of hotel owner and operator disputes and litigation. In one excerpt, Mr. Butler points out one of the root causes of a dispute between an owner and management company, who they deem as their hotel management expert: “Operators don’t want to give up their lucrative management agreements and many of them can’t or won’t change their actions to satisfy owners who bear all the financial risk of the hotel investment. In times like these, owners may find themselves dipping heavily into other funds to meet negative operating cash flows or mortgage payments.” In a related story at HotelNewsNow.com if you are hotel asset manager and owners representative negotiating terms of a new or existing contract, it is important to remember that management and franchise contracts are typically one sided and in favor of the franchisor or operator. Performance guarantees, although never offered in franchise agreements, might be one negotiating point to award the management contract. Another area to consider in the operators agreement, is a quicker remedy to avoid an ongoing dispute. This can be in the form of a provision that hospitality management services can be terminated within a reasonable amount of time when the hotel or resort has not performed up to expectations. However, enforcing these actions by owners and investors against their management company and hotel management expert may require specific benchmarks and language in the contract. This is where an experienced hotel lawyer on such matters should be consulted first.