The relationship between a hotel owner and the operator under a typical hotel management agreement (HMA) is inherently unequal, say those directly involved in the matter.
“There’s just a massive disparity in terms of risk and exposure,” said Phil Golding, partner at Cedar Capital Partners.
“I agree that balance can never be measured in the amount of the investment,” said Miguel Martins, head of developments for northern Europe, IHG Hotels & Resorts, speaking from the point of view of the brand and operator.
Asset light vehicle
HMAs were originally devised in the 1990s by the major hotel brands to transition to an asset light business model while keeping control over day-to-day management and longer-term strategic direction, explained Simon Price, international head of hotels, hospitality and leisure, Bird & Bird.
For full-service, lifestyle, and luxury properties today, HMAs, rather than franchises or leases, are often the only model available.
Referring again to the owner/operator misalignment, Golding observed that hardly any other industries conduct business in this way, apart from in the worlds of shipping and sport.
Football managers are often sacked on the spot by their owners after losing just a few games, but such decisions trigger huge expense, said Price. The same cannot happen to hotel general managers because traditionally the terms of an HMA do not allow it.
Performance and removal
Luxury HMAs typically run for 25 to 30 years. Normally, an operator can only be removed if the owner proves sustained underperformance. This usually means failing the GOP and RevPAR tests for two consecutive years. Today, some owners may have negotiated early exit mechanisms, but it’s nowhere near the same as firing an under-performing football coach.
Irrespective of misalignment, stakeholders need to be pragmatic. Golding said: “We believe in HMAs and we believe in the luxury space. At Cedar Capital, about two thirds of our portfolio is under HMAs with international operators. You sign an HMA because you think it’s going to create value for the asset. This hotel must be worth more with this management agreement in place.”
Choosing the operator
HMAs are the result of negotiation, so how are owners and operators at least trying to bridge the divide in terms of risk and flexibility?
Daniel Johansson, director of development and acquisitions, Cheval Collection, said that owners can always choose to run the hotel themselves, or they can choose: “a great operator and then you’re protecting some of the downside. Under an HMA, we're providing a service. We're only taking a small percentage relatively, and [the owner] is keeping the upside. So I think it's about choosing the right operator.”
For ultra‑luxury assets, however, the brand and operator are inseparable. Choosing Four Seasons, Mandarin Oriental, Aman or Ritz‑Carlton automatically means accepting the brand as the operator.
Negotiation trends
Moving on to look at what is happening during HMA negotiations today, Johansson said: “This is what we see on term sheets: GOP thresholds, where your incentive fees sit, and where the base fee sits; flexibility around term exits; key money and financial guarantees. These are in every conversation.”
Another operator, Olivier Jacquet, who has worked at the likes of Louvre Hotels and United Hospitality Management, said “If the market is suddenly declining by 50 percent because of a war, what is important is that you manage the hotel properly in the context of market performance.”
Operators need to give owners more KPIs: detailed reporting, up-to-date benchmarking against relevant competitor sets, and performance reviews, he said.
Key money
Owners increasingly want operators to share more of the financial risk, and Golding at Cedar Capital Partners said the most effective tools are loans andkey money.
He said: “The big operating companies have been very vocal about this, how it's increasingly competitive in the climate today, and they're more open to providing financial assistance in order to win and secure management agreements.”
He cautioned against operator co‑investment in the equity, arguing that when an operator owns part of the hotel, “it creates misalignment and blurriness around the boardroom table.” For Cedar, co‑investment complicates governance, whereas loans and key money provide cleaner alignment.
Keep it simple
Having acknowledged that alignment is not perfect, Miguel Martins of IHG, believed that over‑engineering HMAs with layers of clauses is not the answer. “Less is more,” he said, noting that complex provisions are often difficult to execute.
Over the lifetime of a management agreement, luxury and upscale hotels need constant care and attention which obviously requires capex.
“The biggest tension I see around HMAs is during budget season. I'm not going to say that I see chairs flying around, but it almost gets to that point,” commented Martins.
Routine upgrades
As part of the annual budget process, a major focus is always on the furniture, fixtures and equipment (FF&E) budget, which is typically 3 to 5 percent of revenues, whereas the real cost is more likely 10 to 12 percent, reckoned Golding.
“Every seven years you've got to do a major renovation of all the FF&E. Every 12 to 15 years you've got to do more mechanical and engineering related matters, and every 25 years, you’ve got to change the guttering and the plumbing and everything else. That’s an awful lot,” he said.
Capex cycles
Under a typical HMA, paying for FF&E is an owner responsibility, funded through the FF&E reserve, which the operator administers but does not finance.
Owners can negotiate protections in an HMA, such as moratoriums on new computer rollouts when they already invested in a new computer system two or three years ago. Operators understand this, Golding commented, and generally want to avoid unnecessary spending as well.
All quotes taken from the session ‘Management agreements: Balancing brand premium, P&L pressures, and flexible partnerships’ at IHIF EMEA 2026 in Berlin.