A successful hotel business almost always requires collaboration between the hotel owner and a brand which often acts as managing agent of the business on ownership’s behalf. These are complex relationships, involving the oversight and operation of a sophisticated hospitality business, including the development and implementation of complex sales and marketing strategies, revenue management, financial reporting and oversight of an extensive staff of employees. Adding to the complex nature of the relationship, Operators derive the vast majority of their fees as a percentage of the top-line revenues, while ownership is focused on its net operating income; and because the hotel operator by definition usually possesses superior expertise in the day-to-day operation of and management of hotels, hotel operators routinely demand significant discretion to operate the hotel as they see fit.
The parties attempt to address these potentially conflicting dynamics in the hotel management agreement (HMA). In an effort to reassure a hotel owner who is being asked to relinquish day-to-day operations of its valuable business to a responsible third party, among other things the parties have historically agreed that the hotel operator undertake its duties as the owner’s agent, and thus owing the owner the fiduciary duties of utmost good faith, loyalty, and honesty. However, there is a trend in the hospitality industry in which operators are seeking to limit or avoid the fiduciary obligations attendant to a principal-agent relationship by either generally disclaiming the existence of a principal-agent relationship between operator and owner, or by specifically disclaiming that the operator, as agent, owes fiduciary duties to the owner.
