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Hotel management models
What are the types of hotel management contracts and what are their conditions?
Do you want to know the different types of hotel management and its advantages?
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Types of hotel management are not static and new models and contracts continually appear to be influenced by the economic environment. A hotel management contract will usually be signed by the business owner and the manager of the hotel chain.
Each negotiation will have specific conditions agreed upon between both parties. Therefore, although there are several common management models, each case will be unique. The conditions of each model can also be interchanged and integrated between, customising the agreement as much as possible. In fact, hybrid models are becoming more typical in the Spanish tourism sector.
Hotel lease model
In the leasing model of a hotel, the manager (the hotel chain) assumes the business risk. It is a rental contract, so the relationship is the same as that between a landlord and tenant.
Of course, in this model the owner still owns the property as well as all of its facilities.
In the lease contract, a lease fee that the operator will pay to the property must be agreed upon in advance. It will also distinguish when and how the payment will be made.
The rent can be paid in two ways. First, in a fixed amount. so that the operating hotel chain always delivers the same agreed figure regardless of the business benefits. Secondly, the rent can be paid in a variable amount, which will depend on an exploitation margin.
As we have already mentioned, this model can have infinite variations according to the requirements that each party considers necessary to include in the agreement.
Active management model
In an active management contract, the owner will assume the business risk because the hotel chain only acts as the ‘manager’ of the establishment. In this way, the chain will earn an agreed percentage on theeconomic profits.
The chain will commit to a good operation of the business and in most cases will also contribute to the name and reputation of the brand.
There are several types of contracts within the active management model. First is the implementation of a contract with a minimum guaranteed result. essentially committing the hotel chain to a profit. If the economic objectives are not met, the contract can be rescinded by the owner ora part of the compensation of the hotel chain can be reduced depending on the agreements reached.
Alternatively, the management contract can include a secondary condition and it is the owner who would receive benefits as long as they meet the minimum economic figures agreed upon beforehand.
The hybrid model is formed from the combination of the lease and the management contract.
This model is increasingly popular as involves the distribution of business risk between the manager and the owner.
In hybrid contracts, improvements to the property, such as the creation of new services or improvements to the infrastructure, are usually taken over by the management company – the hotel chain. This type of contract entails a more exhaustive revision of the conditions including an economic and legal analysis by both parties.
Management model with franchise
Finally, in the franchise management model, there is a figure of the franchised company, which will be the one that will cover all the business expenses and exploitation, and a figure of the hotel chain, in this case the franchising company. Essentially, work goes through authorising the use of the brand in exchange for an agreed monetary amount.
The franchise will benefit from the position and value of the brand and will be able to enter a market in which they would not have been able to compete in without the help of this image.
According to the Alimarket Census on January 1, 2017, franchise accounts for 3.06% among the operating models of different hotel chains.
Currently, FERGUS Hotels is seeking to incorporate new assets to its brand, preferably in rental operations and/or management. In this article you can read more about the incorporations to the hotel chain.