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.