Hotel Management Agreement

Along with the development of the tourism industry, today’s hotel management and operation units are able to cooperate more diversely with hotel owners to be able to develop (construction, management, operations) hotels more efficiently and effectively.

Specifically, those units can:

• cooperate with hotel owners to develop a hotel or a chain of hotels in which the hotel management and operation unit is also a partner – an owner of the hotel;
• lease part of a hotel or an entire hotel to operate;
• directly manage and operate the hotel under a hotel operation and management contract of service;
• franchise an existing trademark or developed trademark at the request of the hotel owner.

However, it is evident that the use of hotels in Vietnam remains in the traditional form. Accordingly, hotel owners appoint hotel management and operation unit(s) to operate the hotel according to standards, and a business plan – the budget is established, and the hotel management unit accepts it.

Under this form of usage, the owners flexibly choose a hotel management and operation unit according to one of the options below (depending on certain needs, budgets, and standards), such as:

Using professional hotel management and operation units

Hotel owners often work cohesively with reputable hotel management and operation units, to ensure professional hotel operations, and effectively affiliate a pre-agreed upon brand.

Hotel management and operation units selectively choose projects that they will accept – ranging from the hotel’s size, application of standards, geographic area, and operational stability for the long term.

Most often, hotel management and operation units are intensively involved – even while the hotel is being built – by providing services such as business models, design, technical services, and pre-opening services. These activities ensure that the reputation of the hotel management and operation units are maintained.

Under this particular form of hotel management and operation, it is evident that hotels in larger cities or in key tourist areas make use of reputable management and operating units such as Marriott International, Hilton Worldwide, Inter-Continental Hotels Group, AccorHotels, Wyndham Hotel Group, Choice Hotels International, Best Western International, Hyatt Hotels, etc.

Using new and emerging domestic and foreign hotel management and operation units

There is a plethora of well-known international hotel management and operations units that are already established in countries such as Indonesia, India, Japan, Thailand, and Malaysia.  These internationally known entities are the ideal choice for hotels developed by hotel owners in Vietnam.

The advantages of those hotel management and operations units are the appropriate structure of management fees, hotel operation standards – congruent with those of the recognized standards worldwide, and the diversity and flexibility of service and knowledge with respect to local customs, culture, and regulations.

Using self-management and operations through subsidiaries

This option is suitable for situations in which the hotel owner has the human resources to assume management of the hotel – or when the hotel is a small scale, family-owned operation.

In any form of management and operation, hotel owners, management, and operation units must use the Hotel Management Agreement (HMA) as a tool – both for accounting, determining the rights and obligations of each party, and as a basis for resolving disagreements.

Unfortunately, there are no laws – in Vietnam – that contain specific and clear provisions for this type of contract. This new and open approach is based on the foundation of respecting each party and the agreement between them according to Civil Code 2015 which affirms that each signed hotel management agreement remains legally valid and in compliance with its requirements, or the performance of a hotel management agreement will be guaranteed under the principles of civil law.

It is important to understand the hotel management agreement poses many legal issues to the hotel owner, as well as the management and operation units, such as:

• Determination of applicable law(s) to the creation, registration, and use of intellectual products – typically whether trademarks associated with the Hotel, are covered by the law on Intellectual Property;
• Distinction between a franchise contract and a hotel management agreement under the provisions of Commercial Law and Civil Code 2015;
• Determination of responsibilities of the owner, as well as that of the hotel management and operation units with respect to hiring and management of human resources under the provisions of the Labor Law.

Creating a legal corridor to clearly and completely define the nature of the hotel management agreement introduces regulations in an effort to avoid disputes and disagreements between the parties and provides the jurisdictions with a comprehensive, and unified perspective in the even that issues arise, and thereby promotes the development of the service and tourism industry.

Our practical experience demonstrates that, each hotel management agreement necessitates that the following provisions included:

(1)   Definitions;

(2)   Manager Appointment;

(3)   Hotel management term;

(4)   Manager’s obligations;

(i)    General obligations;

(ii)   Budget;

(iii)  Human resources;

(iv)  Records;

(v)   Tenants and In-house guests;

(vi)  Repairs and Maintenance;

(vii) Services and Shopping;

(viii) Corporate services;

(ix)   License(s);

(x)    Law Compliance;

(xi)   Payment of taxes;

(xii)  Transaction(s) with affiliated companies;

(xiii) Additional services;

(xiv) Notice(s) to the owner;

(xv)  Commitment and Warranty of the Manager;

(5)    Hotel operation fee(s);

(i)     Hotel operation fee(s);

(ii)    Refunds to Manager;

(iii)   Manager’s self-pay expenses;

(6)    Working capital and Bank accounts;

(i)     Deposit Account;

(ii)    Working capital;

(iii)   Contingency;

(iv)   FF&E Reserve Account;

(7)   Books, Records, and Statements;

(i)   Monthly Reports;

(ii)  Yearly prospectus;

(8)  Management fee and Payment to the Manager;

(i)   Basic management fee(s);

(ii)  Bonus;

(iii) Payment to the Manager;

(9) Evaluation criteria;

(10) Manager’s Capital contribution;

(11) Insurance;

(12) Use of trademark/brand;

(13) Hotel repair, renovation, and upgrade(s);

(14) Hotel sale;

(15) Destruction, damage, and/or suspension of business;

(16) Restricted area(s);

(17) Contract termination;

(18) Notice(s);

(19) Dispute resolution;

(20) General provisions;

(i)    Non-compete;

(ii)   Owner’s right of inspection;

(iii)  Partial effect(s);

(iv)  Third party entitlement;

(v)   Waiver(s);

(vi)  General provisions;

(vii) Interpretation;

(viii) Applicable Law(s);

(ix)  Limitation of Owner’s Liability;

(21) Appendix

(i)    GM Report Form for Owners;

(ii)   Report on profit/loss;

(iii)  Form of Business plan and Annual budget;

(iv)  Bank Statement(s);

(v)   Report on Revenue(s);

(vi)  FF&E Reserve Account;

To ensure the transparent operation of the hotel in general and the relationship between the Owner and the Management units in particular, it is necessary for the parties to agree on the applicable financial and accounting principles. The Uniform System of Accounts for the Lodging Industry jointly developed by the Hotel Association of New York City and the Financial Management Committee of the American Hotel & Lodging Association (AHLA), with funding from Hospitality Financial & Technology Professionals (HFTP) IS a highly recommended option.

Conclusion

In comparison with other fields of business, tourism and hotel services have seen a remarkable development over the years – especially in the second half of the 20th century. Thanks to the development of the modern economy of means of transportation and infrastructure, and the demand for tourism and investment throughout the world.

Simultaneously, a hotel management agreement has made significant progress.

Many new regulations and a plethora of new content have been proposed, discussed, and resolved through the contributions of the parties to establish a firm foundation for hotel owners, hotel managers, and other management agencies in Vietnam to learn from and adhere to common regulations, rules, and practices in this area, along with further improvements to the legal system and ensuring a safe and stable business environment.

You can download the pdf version of Hotel Management Agreement here.