Hotel Management Agreement
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This article is written by Adv Gaurav Prakash.

 

According to a report, India’s event management Industry is worth USD 172 million. It is growing each year as nowadays people aim for a better lifestyle and they have a better household income than their vintage generation. Throwing parties for small occasions has become a norm in urban India. For organizing these events we need individuals and companies who can take over the burden of the exotic events. Whenever there are events, there will be a commercial relationship between the client and the event organizer and every commercial relationship should have a legal contract to legitimize their relationship. Here we will talk about the Hospitality Agreement.

Difference Between Hospitality and Hotel Management Agreement

Hospitality Agreements are a peculiar form of contract involving a complex array of documentation – the operations agreement, the license agreement, the technical specifications agreement, and the centralized services agreements. We often get confused between Hospitality and Hotel Management. Hotel management involves learning management techniques that apply to hotel administration, marketing, housekeeping, maintenance, catering, etc. Unlike the hospitality industry, hotel management is focused on the hotel industry and its functioning.

On the other side, hospitality management is wide and includes several industries under it, hotel management one of them. Event management agreement and Venue -hire agreement is one of the few examples of hospitality agreement. In both these agreements, the agreement is entered between the client and the service provider. The agreement is entered into between parties for a particular event (music concert, marriage ceremony, book-launch event, etc.). An event management contract is required for an appointment of an event manager for looking after the various aspects of the event like marriage, business conference, etc.). In the Venue-hire agreement, the contract is drawn between the owner of the premise and the client for reserving that premise for a particular event. The client is supposed to pay the owner of the venue in advance to book the venue for the event. Let’s discuss these agreements in detail.

Event Management Agreement

An event management agreement is heavily dependent on commercial terms. The event management may provide one or more of the following services: 

  1. Reserving a location for the event 
  2. Coordination with outside vendors 
  3. Developing a parking plan
  4. Designing emergency contingency plan
  5. Ensuring compliance with health and safety standards
  6. Managing staff responsible for each function
  7. Overseeing the execution of an event
  8. Monitoring of the event
  9. Resolving event situations on site 

Event Management Agreement should not be confused with Event planning, sometimes the event management company will also be involved in the planning of the event. For example, an event management company is approached by a client for their marriage. Now the Event management company, on the client’s demand can even provide them with the wedding planner who will be responsible for deciding the theme of the wedding, the venue of the wedding, the pre-bridal makeup, the theme of the cocktail party. But one must not get confused between them as Event planning involves working with the client from the point of conceptualization, discussing the event ideas, theme, budget, catering, etc. Event management includes creating, coordinating, and managing every different aspect of an event. The implementation of ideas hatched by the event planner is event management.

What are the essential/standard clauses of event management agreement?

  1. Identification of the parties- The parties to an agreement should be properly and unambiguously identified. The name of the client along with his residential address and identification proof number should be stated in the name clause of the agreement. 
  2. Description of the event- There should be a complete description of the event, the date at which the event will be organized, the venue of the event, and the number of the people who will be the part of the event.
  3. Fees The client shall prescribe in this clause the amount to be paid to the event manager, usually the payment of fees to the event managers in these events are paid in installment either on specific dates or on achievements of milestones. The event manager is usually reimbursed with other expenses which are incurred by the Event manager for making the event a successful event, but such expenses shall be incurred after taking the written consent of the client.
  4. Registration– For making any agreement admissible in court it must be registered, hence this agreement should also be registered. 
  5. Termination clause There is always a chance that event can be canceled, because of some of the acts or omissions of either party, termination clause in the venue hire agreement should strictly apprise the parties about the conditions which can lead to termination of the contract as well as the damages which will be paid by the offending parties. 

Venue-hire agreement

Next, we will talk about the Venue-hire agreement, suppose a political party wants to conduct a political event and for that, they have hired Hotel Ashoka as the venue for that event then, in that case, both the parties i.e. the political party and the owner or the management of the Hotel Ashoka will enter into an agreement which will be called as venue-hire agreement. Sometimes the event management company enters into a Venue-hire agreement on the behalf of their clients with the owner of the venue. It is one of the most common types of Hospitality agreement. In every Venue-Hire agreement, there are certain conditions which are general conditions and certain conditions which are specific in nature. If an auditorium is booked for a marriage ceremony then it will have different requirements and conditions whereas if an auditorium is booked for a political or corporate event then it will have different requirements and conditions.

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What are the essential/standard clauses of venue-hire agreement?

  1. Name and obligation of the parties The person who hires the venue is called the hirer and the person who owns the venue is called the owner of the venue. The Hirer agrees with the owner to perform the General and Special conditions of this agreement. 
  2. Deposit– The owner of the venue generally demands some token money from the Hirer to block the date of the event for his venue. The consideration of the Venue hirer is usually paid in installments. In case the event did not happen due to the non-performance of certain conditions then the money paid by the Hirer can be either returned by the owner of the venue or he can keep it with him due to the last-minute cancellation of the event by the Hirer. 
  3. Force Majeure – This clause mentions that the liability of parties that neither party hereto shall be liable or responsible to the other for any loss or damage or for any delays or failure to perform due to causes beyond its reasonable control including, but not limited to, acts of God, strikes, epidemics, war, riots, flood, fire, sabotage, terrorist activity or threat, closure or congestion of airports, or other curtailments of transportation facilities or roads.
  4. Deliverables – Deliverables include services like accommodation, electricity, furniture, generators, and all other equipment and amenities. The agreement should have clear provisions as to mention the services provided by the owner for the price. All the inclusions and exclusions should be set out in detail. The owner of the venue may mandate the client to avail of some of the services exclusively from him or any accredited vendors. For instance, some owners do not allow third-party catering providers to provide food for the function at the venue. In such cases, the agreement should expressly provide all the services provided exclusively by the owner or other exclusive vendors designated by the owner.
  1. Cancellation and Postponement of the Event – The cancellation clause lays down the conditions by which the hirer can cancel his booking. The method, conditions for cancellation, and the notice period for such cancellation should be agreed by the parties to the agreement. The cancellation fee which is to be realized from the hirer should be expressly provided to avoid complications. The owner should mention in the agreements when he can cancel the agreement without paying for the damages incurred by the Hirer. If certain conditions are not fulfilled by the hirer then, in that case, the owner has the right to cancel the event without paying for the damages, similarly there are situation when because of the incompetency of the owner the necessary compliance with the laws could not take place then in that case the Hirer can cancel or postpone the event without paying for the damages of the venue hirer. 

Hotel Management Agreement

Most of us have stayed in the hotel and have availed the services of a hotel. The costlier a hotel is more royal and luxurious its facilities are. The success of a hotel is dependent on a lot of factors like the location of the hotel, the amenities which it provides to its customers, the condition of the global economy, its occupancy level. But the most important factor behind the success of any Hotel is its management and the human resource who are working for it. The owner of a hotel must recruit the best staff and management for the hotel and the Hotel Management Agreement plays a very important role in this aspect. The classic example of the importance of management of a hotel in its success is OYO. The company which is registered as Oravel Stays Private Limited, more popularly known as OYO rooms is creating a buzz in the hotel business. It specifically aims in providing standardized quality services to its customers on a low budget. 

The Hotel Management Agreement is an agreement that is drafted between the owner of the Hotel and the manager of the hotel. The owner is an individual or a group of individuals who will finance the management, construction, and maintenance of the hotel while the owner/manager is a person or sometimes a franchisee who will be responsible for taking care of the management of the hotel. The manager will be responsible for providing amenities in the hotel, taking care of the day to day activities of the hotel, and to ensure that the investor’s money is utilized for the development of the Hotel.

What are the essential/standard clauses of hotel management agreement?

  1. Non-Disturbance Agreements– Both Owner and the operator of a hotel have different interests and aspirations in a hotel. The owner aspires that the money which is invested by him through debt or by equity should have an ROI(return on investment) and his Hotel remains a profitable entity, whereas the owner/manager of a hotel wants that he/she should have authority and freedom while deciding the affairs of the hotel and the owners as well as the lenders and financiers of the Hotel should have a little or no say in that. The Non-disturbance agreement is a tripartite agreement among the Owner, Operator, and Financer of the hotel which mandates the transfer of ownership to the lender of the owner in case the hotel is not able to generate any profit and is unable to pay its due to the lender. The change in ownership will not lead to any change in the position of the owner and the owner will be liable to receive the payment of its operation fees from the financer. Thus, as an advisor, balancing the interests of all the parties is essential, and requires to be addressed effectively as part of the overall relationship between the owner and manager under the Hotel manager agreement. The transfer of ownership should be according to the terms and conditions of the agreement.
  2. Brand standard– The owner of the assets of the hotel will always be expected to maintain the goodwill and services of the brand if the owner of a hotel has taken a franchise of a Hotel chain. The best example is that of the Oyo hotel. When a hotel gets registered as an OYO hotel it has to maintain certain operational and service standards that should align with the goodwill of the brand OYO. The owner in a franchisee model of the hotel has more authority over the operation of the hotel. This clause should clearly describe the standard obligation of the owner to maintain the brand value of the hotel chain and to provide a customer experience that will not dilute the goodwill of the brand which the owner is representing.
  3. Termination clause– In a Hotel management agreement, an Owner generally has a very few points or opportunities when he can exit the agreement. If an operator does not perform up to the expectation of the owner for consecutive years then the operator can buy out the chances of termination by paying the owner for the loss suffered by him during those years. Thus, it becomes necessary that the Hotel Management Agreement should contain certain events of default which can lead to the termination of this agreement and give an exit option to the owner of the Hotel.

Case Laws

In the Case of Wolley vs Embassy Suites it was held by the California court “that a Hotel Management Agreement, not only defines the rights and obligations of the Owner and the Manager of a Hotel but it also gives rise to an agency relationship. In that relationship, the management company is the agent and the hotel owning company is the principal.”

Then came another California case in 1993 with a similar holding: Pacific Landmark Hotel, Ltd. versus Marriott Hotels, Inc. that also extended to hotel management agreements the common law agency principle that the agent; i.e., the management company, owes to the principle; i.e., the owning company, a fiduciary duty that at law is likely to be a much higher standard of care, akin to what a guardian owes a child. This standard of care is not what one would find or even expect to find among the terms of a commercial contract such as a hotel management agreement.

Conclusion 

These agreements should be drafted while keeping the needs and aspirations of both the parties, the agreements shall neither be too small nor it should be biased for a single party only. Every hospitality agreement needs to be drafted according to the type of event, as a venue hired for a marriage function and a venue hired for a musical concert will be quite different. The agreement should be made after negotiation between both parties has taken place. The hospitality industry is going through one of the worst periods. In these testing times, it becomes important that these agreements are drafted keeping in mind the interest of both the parties.


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