Hotel management agreements and the confusing agency cases

In 1991, a California court, applying California law, in the Woolley versus Embassy Suites case sent a startling message to hotel management companies. At the time, those of us who follow these kinds of cases thought the holding was a one-off, quirky decision that is not likely to be followed and may be overturned in subsequent decisions. It held that a hotel management agreement is not only a commercial contract that sets out the rights and obligations of the parties, but it also gives rise to an agency relationship.

Hotel management agreement

The illusory performance test

In the negotiation of management agreements, owners take comfort from the performance test that in the most optimistic light will allow the hotel owner to terminate a management company that does not meet the standards of the performance test.ÊBut letÕs look more deeply into the proposition that the performance protects the owner from the under-achieving management company.

Peformance test

The illusory indemnification

The major US hotel brands (e.g., Marriott, Hyatt, Hilton, InterContinentalÉ) have become truly global in the past 20 years and many of them now franchise or manage more hotels outside the US than within the US.