The Legal Nature of Hotel Management Contracts
The hotel management contract is not defined by a special law in Georgia — it is built on the general institutions of civil legislation, and its natural framework is the contract of mandate. Under the contract of mandate the mandatary is obliged to carry out one or several acts entrusted to it in the name and at the expense of the mandator. For a hotel this means that the managing operator conducts the hotel's daily business — sales, staff, procurement, marketing and operational decisions — in the name and at the expense of the owner (the proprietor or investor).
This construction also determines the distribution of responsibility: the operator acts in the name of the mandator, that is, in the owner's interests, and precisely for that reason the law requires of it the provision of information and accountability. In addition, some projects are enriched with a joint-activity layer: under the contract of joint activity (partnership), two or several persons undertake to act jointly to achieve common economic or other purposes by means defined in the contract, without creating a legal person — with such an arrangement the owner and the operator find themselves in a common economic interest.
Fee Rules and Legal Risks
The operator's remuneration rests on the fee rules: the mandator must pay the mandatary a fee only in the cases contemplated by the contract or by law. This means that in a hotel management contract the fee formula — a fixed tariff, a percentage of revenue, or both together — must be set out precisely: the law does not establish remuneration automatically.
Where the fee is not determined in the contract, then where any tariff exists the tariff fee is deemed agreed, and likewise in the absence of a tariff — the ordinary fee. In other words, the indeterminacy of the fee amount does not render the obligation itself disputable, but a party may compute its amount differently than the other expected — and this risk is reduced precisely by an exact contractual formula.
The hotel owner's principal instrument of control is the duty to provide information: the mandatary must give the mandator the necessary information and, at its request, supply reports on the progress of performance of the mandate, and after completion hand over an account. In practice this requires regular financial reporting, transparent reporting of operating indicators and the possibility of an audit.
The restriction of this duty is specially regulated by law: an agreement by which the mandatary's duties in this respect will in the future be restricted or excluded requires written form. In other words, reducing the operator's accountability is possible, but only by a written and clear stipulation — an oral agreement does not work here. For the owner this also means that where reports are refused, its position in court will be solidly built on the demand for written form.
Termination: At Any Time, and Its Price
One of the most sensitive points of hotel management contracts is termination. A contract of mandate may be terminated by the parties at any time, and an agreement to waive this right is void. This means that no contract can exclude a party's unilateral exit from the relationship — and precisely for that reason, in planning long-term hotel projects this risk must be taken into account from the outset.
Termination at any time is not free of charge, however: where the mandatary terminated the contract at a time when the mandator lacked the possibility to secure its interests otherwise, the mandatary must compensate the damage caused by the termination, except where it had a significant ground for it. And where the mandator terminates the contract, it must reimburse the mandatary all necessary expenses incurred in performing the entrusted act and, if the contract was for reward, pay a fee proportionate to the work performed. These rules create the legal balance of the exit price.
Protection of the Guest's Property: the Operational Backdrop
The operational backdrop of a hotel management contract is the hotel's liability for the property of guests: a hotel, sanatorium and holiday home are answerable for the damage caused to a guest by the loss, destruction or damage of the property the guest brought with it. This rule does not apply to money and valuables unless they were specially handed over. The operator who manages the hotel daily is responsible precisely for managing this liability as well: including safes, the rules of acceptance and the organization of storage.
How to Structure a Hotel Management Contract
In planning the contract, the relationship model is defined first — a pure mandate or one with a joint-activity element — then the fee formula, the reporting and audit rules, the termination rules and the post-exit conditions. Correct drafting consists in tailoring this statutory framework to the concrete project.
Frequently Asked Questions
On what legal form does a hotel management contract rest?
On the mandate frame: the operator performs the management function in the owner’s name and at his expense; where necessary a joint-activity element is added.
When is the fee payable?
Only where the contract or law so provides; where performance is expected only for a fee, the fee is deemed tacitly agreed.
May the contract be terminated at any time?
Yes, by either party; waiver of this right is void. On termination by the principal, the mandatory is reimbursed necessary expenses and, if for reward, paid the fee proportionately to the work performed.
Is the hotel answerable for a guest’s property?
Yes — for loss, destruction or damage; money and valuables excepted unless specially handed over.
How We Help on Legal.ge
The Legal.ge team assists in preparing hotel management contracts and conducting negotiations: defining the relationship model, the fee formula, reporting and audit rules and termination conditions within the statutory frame. Contact us — the contract will be tailored to your project.