A hotel management agreement (HMA) is a legal agreement between a hotel owner and a management company (operator) outlining the terms and conditions under which the management company will operate the hotel on behalf of the owner. Below is a structured overview of typical sections included in an HMA:
HMA Contract Terms – Table of Contents
HMA Preamble
The preamble of an HMA also called the “Recitals” or “Whereas” section, typically provides a brief background and sets the context for the agreement. This section commonly includes:
- Introduction of the Parties
- Purpose of the Agreement
- Description of the Property
- Intent and Agreement
- Recognition of Brand or Affiliation (if applicable)
- Legal and Regulatory Compliance
While the preamble does not typically contain enforceable terms, it provides valuable context and is a reference point for understanding the contract’s intent, scope, and each party’s roles.
HMA Duration of Agreement
The duration of the agreement typically specifies (i) the effective date of the agreement, usually the signing execution date, (ii) the point from which the contract duration is calculated, usually the first calendar day (1st January) or first fiscal day of the year following the opening date, (iii) the initial term of the agreement, usually expressed in the number of years, (iv) the end date of the initial term is usually the last day of a full calendar year (31 December) or fiscal day of the year, (v) additional contract durations and the conditions or triggers in which such renewals can be caused and in specific cases (vi) timing or window under which the option exists for conversion to another form of agreement such as a franchise agreement. This section may also be grouped with terms and options for termination; see Termination of Agreement below.
HMA Duration – Further Detail and Discussion Notes
HMA Area of Protection
In an HMA, the concepts of “Area of Protection” (AOP) and “Territorial Restrictions” are critical to defining the competitive environment and protecting the interests of the hotel owner and the operator. These clauses are designed to prevent conflicts arising from competing properties and ensure clarity on market boundaries.
HMA Area of Protection – Further Detail and Discussion Notes
HMA Operator Scope of Services
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HMA Operator Fees
An Operator’s HMA fee model typically includes management fees, service charges, and reimbursable expenses. These fees compensate the Operator for using its intellectual property, providing management services, and paying charges and expenses covering direct and third-party service provisions. The section will also outline the payment of the fees to the Operator, usually upon invoice monthly in arrears and adjustable after the annual financial audit.
Depending on the structure of the agreements, some fees may appear in different parts of the agreement or entirely separate contracts. For example, a portion of the Base Management Fee may be split and called the Royalty Fee and included in a Sub-License Agreement (SLA); the Technical Services Fee may appear in a Technical Assistance Services Agreement (TSA or TASA); the Market and the System/Reservation Fees may be in a Reservation System and Marketing Agreement (RSMA), and the detail on Reimbursable Costs and any negotiated Termination Fees would be in the respective sections of the HMA that deals with these circumstances.
Typical fees that may appear in an HMA:
| Fee Type | Purpose | Calculation Range |
|---|---|---|
| Base Management Fee | Day-to-day management | 2%-4% of Gross Revenue |
| Incentive Fee | Performance reward | 5%-12% of Gross Operating Profit |
| Pre-opening Fee | Opening preparation | Fixed or % of preopening budget |
| Technical Services Fee | Design & construction advisory | Fixed or a multiple of rooms |
| Marketing Fee | Central advertising & promotion | 1%-3% of Gross Revenue |
| System/Reservation Fee | Distribution system access | % of Room Revenue |
| Reimbursable Costs | Staffing & operational costs | Actual cost |
| Termination Fee | Early termination compensation | Multiple of annual fees |
HMA Operator Fees, Charges & Expenses
HMA Operator Investment in Property
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HMA Owner’s Responsibility
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HMA Budgeting
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HMA Bookkeeping
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HMA Termination & Exit Provisions
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HMA Performance Standards & Remedies
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HMA Branding & Intellectual Property
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HMA Dispute Resolutions
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HMA Miscellaneous Provisions
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