Virtually all hotel management agreements contain arbitration provisions through which both the hotel owner and manager have agreed to resolve their disputes through private dispute resolution rather than publically, in court. As we have explained in prior articles, when a hotel owner hires a hotel management company to operate its hotel and executes a hotel management agreement (HMA), there invariably exists some tension between the operator and owner with respect to the operator’s responsibilities for the successful operation of the owner’s hotel.
As a result, HMA’s often contain a number of dispute resolution provisions, some of which are designed to resolve specific, acute issues such as disagreements over line items in an annual budget, while others are broadly tailored to resolve global problems with an operator’s management of the hotel, including those that result in a default being declared under the HMA. As such, some alternative dispute resolution provisions are structured to reach a quick solution, while others naturally cause the parties to engage in a more lengthy procedure, with discovery, motions and hearings before a final determination can be reached. And even with a number of alternative dispute resolution procedures and protocols in the management agreement—in part tailored to expedite resolution but also largely motivated by keeping disputes confidential and preventing the owner and operator from airing dirty laundry—there are still carve-outs in the agreements for the owner or operator to commence an action or proceeding in court.
