Belgium - Hotel Management Agreements

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Belgium

QUESTION ANSWER
Are Hotel Management Agreements (“HMAs”) common in your jurisdiction? Yes.
If not HMAs, what are the alternatives/what is commonly used? Although less standard, one alternative is a commercial rental agreement whereby the business activity of the subject hotel(s) is carried out by a lessee who, in consideration for a rent (fixed and proportional), will run the hotel on his behalf (as operator), and not on the account of the owner. Another alternative is the system of franchised hotel(s). Hotel chains franchise one of their brands to hotel owners, who either manage their hotels themselves or use a third management company.
Is it common or usual for the HMA to be governed by (i) local laws; (ii) the laws of one of the parties’ country of incorporation; or (iii) an alternative jurisdiction? HMAs in Belgium will commonly be governed by Belgian law. Disputes under an HMA in Belgium will commonly be settled by Belgian courts, but parties can agree to have those disputes settled by arbitration.
Are there any significant or unusual points to note in respect of tax on HMA payments in your jurisdiction? VAT should be applicable on HMA payments.

Term and Termination

QUESTION ANSWER
Is there a standard contract period of an HMA? There is no legal or standard minimum or maximum duration. The duration is determined between parties and the period tends to be long; between 10 and 20 years.
Is the term usually fixed? Are early exit or similar options included (contractual or implied)? The term is usually fixed. Break options allowing termination of the HMA after a certain period are allowed. Normally parties agree upon a period of prior notice to be respected in case the HMA is terminated.
Is it usual to include fees/liquidated damages for early termination? Exit fees for early termination, other than due to operator default, are common. The level of fees can vary widely depending on a number of issues (e.g. location, brand, scale).
What is the usual position in respect of renewal? The usual position in respect of renewal is to allow the operator to ask for the renewal of the HMA in order to continue operation of the hotel, for a fixed duration, between 5 and 10 years. Normally parties agree upon a period of prior notice to be respected in case the operator wants to renew the HMA. But HMAs can also provide for automatic renewal periods, between 5 and 10 years.

Fees

QUESTION ANSWER
Is there a standard fee structure for HMAs (e.g. base + incentive)? Fee structures vary between operators. Commonly, management fees consist of a percentage of the hotel’s gross annual revenues (base fee) and a percentage of the hotel’s annual operating profit (incentive fee). Some branded operators may intersperse this with royalty fees depending on the hotel’s gross sales. The level of management fees tends to be standard, even if they may vary depending on the typology and characteristics of the hotel, notably its profitability, and the negotiating power of each owner.
What other fees and charges are there (such as royalties, accounting, marketing, licence fees, etc.)? Most HMAs stipulate that (nearly) all costs and charges, including taxes (such as the immovable withholding tax (“précompte immobilier”/“onroerende voorheffing”), related to the hotel, are to be borne by the operator. Moreover, as above, branded operators may require royalty fees depending on the hotel’s gross sales, and ancillary fees that cover miscellaneous expenses, such as the cost of the online reservations platform and above property sales and marketing costs.
Are owners typically required to set aside funds for fixtures and fittings? Operators, and not owners, are typically required to set aside a reserve account (the “FF&E Reserve”).

Performance and Operations

QUESTION ANSWER
What is the usual standard imposed on an operator in respect of the operation of the hotel? Parties usually enter into standardised HMAs. The usual standard imposed on an operator is to achieve long-term profitability while maintaining brand standards. Although operators are usually granted a broad authority by the owners, review or approval by the owners can be compulsory in certain major areas, such as the annual operating and capital expenditure budgets.
What performance measures are commonly used in your jurisdiction? The common measure of performance is based on the total revenues of the hotel in accordance with the Uniform System of Accounts.
Is an operator or owner guarantee common in your jurisdiction? It depends on the parties to the HMAs.
What is the usual position in respect of employees? With whom does the liability for the employees sit? Commonly, HMAs provide that the operator is liable for the employees who are, as the case may be, transferred from the owner to the operator when the owner operates the hotel prior to entering the HMA.
Is it usual to have a non-compete clause, e.g. that no other property with that brand can open within a certain radius? Yes.
Who is responsible for insurance? The owner is usually responsible for property insurance, whereas the operator is usually responsible for operational insurance.
Does the HMA give rights in real estate in your jurisdiction? No (except possible right of first refusal in case of sale of the hotel, to be granted by the owner).
Does the HMA need to be recorded against the property, if this is possible in your jurisdiction? No.
Where financing is taken is it standard to obtain a Non-Disturbance Agreement (“NDA”) as part of a management or lease agreement? Yes.
What other agreements usually sit alongside an HMA in your jurisdiction?

There could be a number of different agreements depending on the operator, these include:

  • Employment contract for hotel manager;
  • (Brand) Licence Agreement;
  • Etc.

Transfers and Assignments

QUESTION ANSWER
What are the standard rights/restrictions in respect of transfer/sale of the hotel? Usually, HMAs provide that the transfer thereof by either the owner or the operator is not allowed without the prior consent of the other party. Additionally, HMAs allow the owner to sell the hotel provided that the owner makes first an offer to the operator to sell the hotel to the operator. Usually also, HMAs provide for a compulsory transfer thereof in case of sale to the new owner (to be approved in advance by the operator upon presentation by the owner).
When a managed hotel is sold (either asset or share deal), is it usual in your jurisdiction that either the Operator’s consent is required for the sale, or that the hotel may only be sold if the HMA transfers with the hotel? Usually, HMAs provide that the operator benefits from a right of first refusal to purchase the hotel and that if this right is not exercised by the operator, the owner can sell the hotel to a third party with a transfer of the HMA to said third party (to be approved in advance by the operator upon presentation by the owner).
Do HMAs commonly include a right of first refusal for the operator to purchase the hotel? Yes.
Is it usual to include provisions which enable the sale of the property with vacant possession i.e. without the brand? No.