As we have explained in prior articles, when a hotel owner hires a hotel management company to operate its hotel and executes a hotel management agreement, the hotel owner turns over to the manager virtually complete control over the hotel and its assets, subject only to the owner’s consent in certain instances. The manager, with varying and limited approval or consent rights from the owner, dictates the hotel’s finances, including the hotel’s business strategy, revenue, bank accounts, and services provided to hotel guests. And it is typically the hotel manager who is the direct employer of the hotel’s various personnel, having the authority to hire and fire the hotel’s employees.
In the end, even though it is the hotel owner who has invested millions of dollars into buying and developing the hotel, the owner is relegated to waiting at the end of the quarter or year for the manager to turn over the owner’s share of hotel profits, that is, once the manager has factored in its own costs, expenses, and bottom-line. In the meantime, the manager may pocket millions in management and other fees regardless of the performance of the hotel or the profits realized by the owner.
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