These hotels are the properties owned by other entities. Under this type of contract, the owner or developer usually retains the financial and legal responsibility for the property, the management company pays its expenses and in turn, receives an agreed-upon fee from the owner or developer and the remaining cash goes to the owner who also pays for debts, insurance, taxes.
A hotel management contract is defined as an agreement between a management company (or an operator), and a property owner, whereby the operator assumes responsibility for managing the property by providing direction, supervision, and expertise through established methods and procedures. The operator runs the hotel, on behalf of the owner, for a fee, according to specified terms negotiated with the owner. Negotiating the terms of a hotel management contract should not be approached lightly, as it can characterize the property’s identity for decades and produce differing results for owners. A well-negotiated management agreement should align the interests of both parties. As an owner, the major goals should be to select the management company that will maximize profitability and therefore the value of the asset and to secure the best possible contract terms with that operator, while at the same time ensuring the operator is properly incentivized to maximize profitability.
Examples – Marriott, Hilton, Radisson, IHG, etc.