Management Agreement and Franchising Agreement – principal documents to govern relationships between modern hotel owner and professional management company.
In modern hospitality when it comes to attracting professional hotel management company and joining international hotel chain, it is common for hotel owners to sign two Agreements: Franchising Agreement (hotel owner – owner of the hotel brand) and Management Agreement (hotel owner – management company).
Such dual agreements are the most convenient way to govern relationships for both a hotel owner (franchisee) and franchiser.
Some of the main features of Management and Franchising Agreements are presented below.
Management Agreement:
1. Owners reserve their property rights in property
2. Management company operates the property
3. Property is maintained by Management Company according to advanced international standards
4. The incentive fee is intended to incentivize management efficiency because it is a percentage of "gross operating profit" – GOP
5. Guaranteed yield level for owners
6. Owners earn guaranteed higher returns
7. Management risks are segregated and of lower level
Franchising Agreement:
1. Owners accrue a right to use recognizable trade mark, expand market share and acquire membership in international hotel chain of exalted credibility
2. Owners reserve their property rights in property
3. The hotel is connected to international booking systems.
4. Owners are provided with qualified corporate support and professional assistance
5. Owners get access to bulk purchase system and opportunity to use advantages of reduced corporate rates
6. Owners get access to modern technologies of service, quality standards, technical and operational standards
