The current progress and positioning of the project will determine the nature of the proposal. Are the critical pillars of the development i.e. site/building ownership, concept approval and finance availability in place or is the project highly desirable for the hotel operator, for example, a key site in a primary target city? Initially, the proposal may merely take the form of correspondence detailing the framework for the commercial terms.
In order to secure mutually committed discussion you or the hotel operator may enter into a limited agreement such as a ‘head of terms’ which typically will summarise the commercial framework to date and set a limited time period (3-12-months) for which the parties agree to negotiate the management agreement and work together to develop other aspects of the project. Except for confidentiality, the ‘head of terms’ is usually not binding beyond its agreed end date and as such has limited legal use beyond concentrating the parties to the main commercial terms. Such a ‘head of terms’ from a reputable hotel operator can add to the recognition of the project and be a valuable document especially for an owner seeking partners and finance.
***detail in HOT***
The value of the head of terms in anchoring terms is somewhat limited, since with the introduction of legal concepts in the discussion and negotiation of the management agreement the commercial conditions in the ‘head of terms’ are frequently revisited. If the project is far enough developed, the concept more or less in harmony with the hotel operator, and the owner has a general understanding of the principles of a management agreement, then especially when time is limited, before the requirement of a binding commitment it may be preferable to move directly to negotiating the management contracts.
See also:
What can a hotel operator do for me?
When should I engage a hotel operator?