The Hotel Management Agreement is signed once and felt for twenty years. It decides who really controls the asset, how much of the top line ever reaches the owner, and what the property is worth on the day it is sold.
Most owners negotiate an HMA the way they would negotiate a lease — focused on the headline fee, lightly advised, and eager to secure the brand. Operators negotiate hundreds of these agreements; a private owner may negotiate two or three in a lifetime. That asymmetry, not bad faith, is where value leaks. The five clauses below are where we see it leak most often in mandates across Saudi Arabia and Europe.
I. The term that outlives the investment thesis
Long initial terms with operator-controlled renewals are standard operator asks. Signed as drafted, they can bind an asset for decades — longer than most investment horizons, longer than most market cycles, and often longer than the owner's own hold period. The practical consequence surfaces at exit: a buyer inherits the agreement, and an unbreakable long-dated HMA narrows the buyer pool to those who accept the operator, on the operator's terms.
The negotiation point is not simply a shorter term. It is symmetry: renewal as a mutual option rather than an operator right, and windows — at refinancing, at sale — where the owner's position can be revisited.
II. Performance tests without teeth
Almost every HMA contains a performance clause. Very few contain one that has ever been triggered. The common failures are structural: tests measured against the operator's own budget rather than an independent benchmark; the requirement to fail two consecutive years on two separate tests before any right arises; and cure rights that let the operator write a cheque to erase the failure and reset the clock.
A test with teeth pairs an absolute measure (a GOP threshold) with a relative one (a RevPAR index against a defined, owner-approved competitive set), limits cure rights in number and in amount, and attaches a real consequence — termination without compensation — when both fail.
III. Approvals surrendered too early
Budgets, capital expenditure, senior personnel, pricing strategy: the draft agreement typically vests these in the operator, with the owner "consulted." Each approval given away individually looks minor. Collectively they amount to the owner financing an asset that someone else manages, staffs and prices — while retaining all of the downside.
Sophisticated owners hold approval rights over the annual budget and business plan, capital expenditure above defined thresholds, the general manager and key hires, and any related-party arrangements within the operator's group. The operator operates; the owner governs. The agreement should read that way.
IV. The FF&E reserve illusion
The furniture, fixtures and equipment reserve looks like housekeeping and behaves like a hidden fee. A fixed percentage of revenue is swept into a reserve the operator controls, spent to the operator's brand standard, on the operator's schedule. Underfund it and the brand can demand a renovation at the owner's cost; leave it unsupervised and it becomes a budget the owner funds but does not direct.
The reserve percentage, the approval of what it is spent on, and the treatment of the unspent balance at termination or sale each belong on the negotiation table — not in the boilerplate.
V. Termination priced by the operator
The most expensive clause in the agreement is usually the one about ending it. Termination fees calculated as a multiple of the operator's projected future fees can make exit prohibitively costly precisely when it matters most — at sale. An agreement with no termination-on-sale right, or one priced at the operator's discretion, converts the operator from a service provider into a de facto co-owner of the exit.
The owner's minimum positions: a termination-on-sale right at a pre-agreed, declining fee schedule; termination without compensation on sustained performance failure; and clarity on what happens to employees, systems and the reserve balance on handover.
The owner's checklist, in one place
- Term and renewal structured as mutual options, with windows at refinancing and sale
- Two-limb performance test — GOP threshold and RevPAR index — with capped cure rights
- Owner approval over budget, capex thresholds, GM appointment and related-party dealings
- FF&E reserve percentage, spending approvals and residual balance negotiated explicitly
- Termination-on-sale at a pre-agreed declining fee — never at the operator's discretion
None of this is an argument against branded management. A strong operator under a well-drafted HMA remains, for many assets, the value-maximising structure. The argument is narrower: the agreement is negotiable, the operator knows it, and the owner should arrive at the table knowing it too — ideally before the letter of intent, when leverage is at its highest.