The announced $12.2 billion acquisition of Starwood Hotels and Resorts by Marriott will unite two of the top 10 largest international hotel operators, creating the world’s largest hotel operator, with more than 5,500 hotels and 1.1 million rooms worldwide. An exciting prospect to many, nevertheless this combination may present serious concerns for current owners of Marriott and Starwood-branded hotels, cutting to the very core friction between owners and operators in the hotel industry—how loyal are the brands to their owners? Setting aside the predictable messaging from Marriott/Starwood of how efficient and otherwise beneficial this will be for their owners—and there will be some benefits—the reality is that owners may now be faced with increased competition within their own brand umbrella and will have their hotels managed by an organization with whom they may have consciously chosen not to do business. So, what now?
The issue of loyalty between brand and owner is not new and frequently presents itself in the contracts common to the industry. Nearly all management agreements require a manager to act as a reasonable and prudent operator of the hotel, having a primary regard for the hotel’s performance and maximization of profits for the owner. This universal clause captures the essence of the agreement and the duty of loyalty is of paramount importance to the hotel owner because the owner typically relinquishes to the manager extensive control over the operations of the hotel business. In addition to the above standard of care, to further insure loyalty, many hotel management and license agreements define the standards by which the operator must run the owner’s business through radius restrictions and transfer of control/anti-assignment provisions.
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