Present growth in the tourism industry, allows hotel management units to further diversify their collaboration with hotel owners to develop – with respect to construction, management, and operations – their hotels and/or hotel chains effectively.

Specifically, hotel management units may now:

(i) Cooperate with hotel owners to develop hotel chains in which hotel operations units and hotel owners are partners.

(ii) Lease the hotel – in part or as a whole – to operate

(iii) Operate a hotel and/or hotels directly under a hotel management and operations service

(iv) Franchise the use of an available brand or expand accordingly at the customer’s request

However, exploitation of hotels in Vietnam continues under a traditional method in which, hotel owners appoint hotel management unit(s) to operate the hotel or hotels under the standards of the business plan table – a set standard budget and management unit with which the hotel will receive.

Under this exploitation method, the owners, flexibly, choose the hotel management units which must follow one of two options:

Professional hotel management and operation units plan

Under this arrangement, hotel owners often work very closely with reputable hotel management units, thereby, helping hotels and hotel chains operate professionally and effectively under a pre-agreed brand name.

Similarly, hotel management units selectively undertake project elements, including size of the hotel, applied standards of the hotel, geographical area, and the hotel’s ability to operate consistently on a long-term basis.

Although, in many cases, hotel management units cooperate meticulously, during construction of the hotel(s) – providing services such as a business model, technical service, pre-opening, etc. – all to ensure that the reputation of hotel management units are maintained.

This fashion of hotel management is straightforward and easy to recognize in big cities and in significant tourist areas.  Consider, for example, well-known hotel management units such as Marriot International, Hilton Worldwide, InterContinential Hotels Group, AccorHotels, Wyndham Hotel Group, Choice Hotels International, Best Western International, Hyatt Hotels, etc.

Popular domestic or foreign hotel management and operation units plan

Many hotel management units come from countries in which hotel management services have been developed in regions such as Indonesia, India, Japan, Thailand, and Malaysia. This is a primary consideration for hotels developed by owners in Vietnam.

Advantages of this type of hotel management unit are appropriate management fee structure(s), worldwide recognized hotel operating standards, diverse and flexible service systems, and the overall comprehension of local culture, customs, and regulations.

Self-management and operations by subsidiary plan

This option is suitable for situations in which hotel owners undertake hotel management, or small-scale hotels, operate under a family model.

Certainly, as with any form of management, both hotel owners and management units must use a Hotel Management Agreement (HMA) as an accounting tool which provides for a delimitation of rights and obligations for each party and allows for the basis of resolving any disagreements (if any).

Unfortunately, current Vietnamese law lacks specific and clear regulations pertaining to such a contract. The new and open approach, based on respect for the agreement(s) between each party of the 2015 Civil Code merely helps affirm that every signed hotel management contract will remain valid when it complies with Civil Code 2015 requirements [1], or the performance of the hotel management contract will be guaranteed by the principles of civil law [2].

Additionally, HMA poses to hotel owners and management units, many legal issues to be resolved, for example:

(i) Laws apply only to the creation, registration, exploitation, and use of intellectual property – typically the brands associated with hotels – and are subject to the scope of the intellectual property law;

(ii) Distinction between franchise agreements and HMA according to the regulations of Commercial Law and Civil Code 2015;

(iii) Determination of the responsibility of the owner and hotel management units with respect to human resources management in accordance with labor laws.

Clearly and completely introducing the potential for legal issues, with respect to HMA, benefits each party toward avoiding and/or resolving any disputes and disagreements and provides judicial authorities with a comprehensive, uniform, and unified perspective when ruling on such issues. Thereby promoting service and tourism development.

Our practical experience indicates that HMAs, includes following necessary content that needs to be discussed diligently in detail [3]:

(1)   Definitions

(2)   Appointment of Managers

(3)   Duration of hotel management

(4)   Management/manager obligations

(i)    General obligations

(ii)    Budget

(iii)   Personnel

(iv)   Documentation

(v)    Tenants and guests

(vi)   Maintenance

(vii)  Services and shopping

(viii)  Groups

(ix)   Permits

(x)    Legal compliance

(xi)   Taxes

(xii)  Corporate transactions

(xiii) Miscellaneous services

(xiv) Notice to the owner

(xv)  Commitment and Guarantee of Management

(5)    Hotel operating costs

(i)    Hotel operating costs

(ii)   Management refunds

(iii)  Management expenses (self-pay)

(6)    Business capital and Bank accounts

(i)     Hotel activity account

(ii)    Current/working capital

(iii)   Reserve capital

(iv)   FF&E Reserve

(7)   Documents, records, accounts

(i)    Documentation, records, and account management

(ii)   Periodic reports

(iii)  Annual reports

(8)  Management fees and payments

(i)   Essential fees

(ii)  Bonus payments

(iii) Management remuneration

(9) Evaluation standards

(10) Management contribution of capital

(11) Insurance

(12) Trademark usage

(13) Hotel maintenance and renovation

(14) Hotel selling

(15) Destruction, damage, business suspension

(16) Restricted areas

(17) Contract termination

(18) Notifications

(19) Dispute resolutions

(20) General regulations

(i)    Non-compete agreements

(ii)   Owner’s right to inspection

(iii)  Partial validation

(iv)  Third party rights

(v)   Renunciation

(vi)  Whole terms

(vii) Explanation

(viii) Applicable law(s)

(ix)  Limitations of Owner’s responsibility

(21) Appendix

(i)    GM’s report (to the owner)

(ii)   Profit/losses reports

(iii)  Templates for business plans and annual budget

(iv)  Bank statements

(v)   Sales reports

(vi)  FF&E fund operating costs

To ensure the general, transparent operation of the hotel, the relationship between Owner and Management Unit in particular, the parties should agree on applicable financial and accounting principles. Uniform Systems 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 (AH&LA), with funding from Hospitality Financial & Technology Professionals (HFTP) – is a highly respected option.

In summary

Compared to other fields, tourism and hotel services have grown tremendously, especially since the second half of the 20th century – emerging from the development of the modern economy, the development of transportation, and the demand for tourism and investment worldwide.

Likewise, hotel management contracts have made significant progress. Many new regulations and content have been contributed, discussed, and resolved by the parties to create firm foundations. Thus, helping hotel owners, managers, and management agencies in Vietnam to learn, access, and practice the general rules in this field toward improving the legal system, and ensure a safe and stable business environment for all parties involved.

[1] Article 117 [Conditions for effective civil transactions]; Article 119 [Forms of civil transactions]; Article 122 – Article 130 & Article 385 [Definition of civil contract]; Article 407 [Invalid civil contracts].
[2] Article 3 [Basic principles of civil law]; Article 4 [Application of the Civil Code].
[3] These are necessary issues in each hotel management agreement. The parties will select and adjust the hotel management agreement template as most appropriate for their participation.

Content Protection by