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Hotel Management Contracts

What is an Incentive Fee?

It is a fee paid to the operator based on the hotel's profitability (GOP), incentivizing them to manage costs efficiently, unlike the Base Fee which is based on revenue.

Can the owner fire the General Manager?

Typically, the operator appoints the GM, but the owner usually negotiates the right to approve the candidate or request a replacement after a certain period.

Who owns the furniture and equipment (FF&E)?

The hotel owner owns all FF&E, but must maintain a reserve fund (usually 3-5% of revenue) to replace them according to brand standards.

Is it better to franchise or hire a management company?

Franchising gives more control but requires operational expertise. Management contracts are more "hands-off" for investors but come with higher fees.

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Hotel Management Agreements (HMAs) are complex legal instruments regulating the relationship between a hotel owner and an operator company (often an international brand). With the tourism boom in Georgia, the entry of international brands (Marriott, Hilton, Accor, etc.) is in an active phase. Such contracts are often calculated for decades and cover critical issues such as management fees, brand standards, staff management, and financial reporting. It is crucial for the owner that the contract protects their investment interests and provides mechanisms to control the operator. Legal.ge offers access to real estate and hospitality lawyers who will help you negotiate a balanced and profitable HMA.

What does the Hotel Management Contracts service cover?

The service includes the full cycle of negotiations and detailed contract analysis:

  • Fee Structuring: Agreeing on the amount and calculation method of the Base Fee and Incentive Fee to ensure the operator is motivated to increase profits.
  • Performance Test: Including mechanisms that allow the owner to terminate the contract if the operator fails to achieve agreed financial results (RevPAR, GOP).
  • Budget and Expenses: Procedures for approving the operating budget and the owner's right to control unforeseen expenses.
  • FF&E Reserve: Rules for managing the fund intended for the renewal of furniture, fixtures, and equipment.
  • Staffing Issues: Owner's involvement in the appointment and dismissal of the hotel's general management.
  • Territorial Protection: Restricting the operator from opening another hotel of the same brand near the owner's hotel.

Common scenarios and needs

HMA service is essential for the following types of investors:

  • New Hotel Construction: An investor builds a hotel and wants to bring in an international brand as a manager.
  • Rebranding: The owner of an existing hotel wants to change the operator or switch from a franchise model to a management model.
  • Mixed-use Projects: When a project includes both a hotel and branded residences, requiring regulation of the management of both.
  • Contract Termination: When the owner is dissatisfied with the operator's performance and wants to terminate the contract with minimal penalties.

Georgian Legal Framework

Hotel management contracts mainly rely on:

  • Civil Code of Georgia: Norms regarding service, mandate, and lease agreements.
  • Tax Code of Georgia: Important regarding the taxation of fees paid to non-resident operators (Reverse VAT, Withholding Tax).
  • Intellectual Property Legislation: Rights to use the brand mark.

Service Process Step-by-Step

Collaboration with experts on Legal.ge includes:

  1. Letter of Intent (LOI): Agreeing on key commercial terms with the brand at the initial negotiation stage.
  2. Technical Services Agreement (TSA): Monitoring compliance with brand technical standards during the construction phase.
  3. Hotel Management Agreement (HMA): Drafting and negotiating the main document.
  4. Copyright and License: Legal formalization of the right to use the brand.

Why Legal.ge?

International hotel operators have strong legal teams that offer owners "standard" contracts favorable to them. Without an experienced lawyer, an owner might find themselves in a 20-year "captivity" where they have no real control over their property. Legal.ge allows you to find specialists who have experience working with HMAs and can protect your interests as an investor.

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Specialists for this service

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