Though hotel management agreements (HMAs) are generally long-term agreements with terms extending for decades, courts in New York and elsewhere have recently confirmed that a hotel owner at all times retains the power to terminate an HMA at any time and for any (or no) reason. See, e.g., Marriott International, v. Eden Roc, 104 A.D.3d 583 (1st Dept. 2013) (confirming that HMAs are “classic” personal services contracts that may not be enforced by injunction); FHR TB v. TB Isle Resort, 865 F.Supp.2d 1172 (S.D. Fla. 2011) (applying New York law and holding that, in addition to HMAs being personal services contracts, they are agency agreements which may be unilaterally terminated at any time by the hotel owner as principal).
While a decision to terminate an HMA carries obvious legal implications, including triggering a possible wrongful termination claim by the hotel operator, owners increasingly are using this termination option to rid themselves of a poorly performing operator and to unlock value on an underperforming hotel. In response to these court decisions, operators have sought to include “contractual injunction” provisions in HMAs, entitling them by contract to what is otherwise unavailable at common law. The enforceability of such provisions remains an open question for a number of reasons, including that attempts to limit by contract the right of a party to walk away from a personal services contract may run afoul, ultimately, of the U.S. Constitution’s Thirteenth Amendment’s proscription against involuntary servitude.
