Hotel Management Agreement Negotiations - Issues which Take Up the Time and Generate the Angst
This edition's issue - The Owner's Lender - Why does the Operator impose restrictions and requirements?
During the course of a negotiation in relation to a hotel management agreement (HMA) there are many issues to be identified, negotiated and resolved. Some issues seem to come up more regularly than others and seem to take a disproportionate amount of time to deal with to the satisfaction of both owners and operators. In this series we will focus on a number of issues which fall into this category.
In previous editions of the newsletter in this series we have dealt with:
In this edition we explore the complex world of restrictions that an operator seeks to impose on an owner's lending arrangements.
Owners negotiating their first HMA struggle to understand why operators can adopt such an intrusive attitude to the owner's financing. This is particularly the case if the negotiations with the operator precede negotiations with the owner's prospective financier. In many instances the HMA negotiations precede the point in time where the owner knows the identity of its financier let alone the terms upon which the financier is prepared to lend.
For these reasons it is incumbent upon an owner's advisers to ensure that the financing restrictions that the owner agrees to are as flexible as possible. Equally, it is incumbent upon the negotiators acting for the operator to maintain flexibility particularly in a "beauty parade" scenario where undue rigidity may impact adversely upon the operator's commercial proposal or, even more starkly, disqualify the operator from the process.
Since we are based in Australia, we will approach the questions below from a broadly Australian perspective. However, the good news is that we have 17 offices in Asia Pacific and many more around the world to answer any of your jurisdictional specific questions.