The management contract is a well established commercial arrangement which typically provides an owner with a professional hotel management company to market, sell and operate the hotel on behalf of the owner. The management company may utilise the owners own brand, their own brand, or agree on a franchise.
The key features are typically*:
- Freehold, or otherwise ownership sits with the owner – no change
- No lease is created
- The term is typically 25 years (but can be any length with break options)
- The owner typically enjoys an income depending upon the financial performance of the hotel and less the fees of the management company
- The hotel is maintained by the management company through the trading account (major repairs typically require capital from the owner)
- The condition of the hotel at the end of the term will be dependent upon the maintenance regime (FFE reserve) – no dilapidations are applicable
- The owner’s income is totally dependent upon the hotel’s performance and opportunities to achieve better returns than those of a traditional lease
- The management contract is likely to have performance clauses giving the owner flexibility to review
- The management fees are usually based on a percentage of revenue and incentive. These will be in addition to any franchise fees payable if that option is selected
*Exact terms will vary.
Key advantages to the owner:
- Established business model
- The owner will achieve a full outsource solution
- The value of the trading business created may be greater than the value of the asset
- Some management contracts provide the owner with a degree of flexibility. This is through break options and performance related clauses
- The owner may determine the level of engagement with the management company and thereby effects the trading strategy and returns with a degree of ‘control’ (some operators will offer the owner no control)
- Any capital appreciation of the hotel over the term sits with the owner
Countrywide offers an owner a managed contract model but with the flexibility to create the contract around the owner’s priorities. These priorities may be commercial, but may also be reputational or similar.
Countrywide would engage with a franchisor and the owner to ensure best fit.
Fees are typically agreed on revenue and EBITDA delivery. Franchisor fees will vary.
For more details, please contact one of the senior Countrywide team.
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