The concept of private residences within operating hotels has been around since New York's Sherry Netherland Hotel first opened in 1927.1 That concept took on new life in the last real estate boom as virtually every major branded luxury and/or lifestyle hotel developed included some residential component, with purchasers being sold on the benefits of buying into condominiums branded with and managed by the most exclusive flags in the hospitality market. Perhaps not surprisingly, it has been reported that those branded residences routinely commanded premiums of between 20 and 30 percent over the average price for non-branded residences in the same market.2 And while many of those developments suffered greatly during the downturn, with the overall improvement in the economy, there has been a "revival" in the development of luxury hotels containing branded residences, especially in markets that are popular with international buyers, such as New York and Miami.3
While branded residences may provide significant economic benefits to hotel developers, the branding of those residences could create complications for owners and hotel operators when the brands are removed following termination of a hotel management agreement. This issue can arise when a hotel owner, dissatisfied with its manager and brand, makes the decision to terminate its hotel management agreement and remove the brand from the hotel, including from the residences. It may also arise when either the owner or the operator terminates its management agreement following an event of default. In those situations, the parties are faced with the question of what, if any, potential liability they may have to residential owners who purchased their units with the expectation that they would be housed within a hotel bearing a particular exclusive brand name.
