Management Contract Hotels: How They Work (Classification of Hotels)

By Sumit Manwal, Founder, Hospitality Vacancy

Many branded hotels you see are not owned by the brand at all. They are run by a hotel company under a management contract, while someone else owns the building.

Here is how the management contract model works and why it is so common.

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Management Contract Hotel

These hotels are the properties owned by other entities. Under this type of contract, the owner or developer usually retains the financial and legal responsibility for the property, the management company pays its expenses and in turn receives an agreed upon fee from the owner or developer and the remaining cash goes to the owner who also pays for debts, insurance, taxes.

A hotel management contract is defined as an agreement between a management company (or an operator), and a property owner, whereby the operator assumes responsibility for managing the property by providing direction, supervision, and expertise through established methods and procedures. The operator runs the hotel, on behalf of the owner, for a fee, according to specified terms negotiated with the owner. Negotiating the terms of a hotel management contract should not be approached lightly, as it can characterise the property’s identity for decades and produce differing results for owners. A well-negotiated management agreement should align the interests of both parties.

As an owner, the major goals should be to select the management company that will maximise profitability and therefore the value of the asset, and to secure the best possible contract terms with that operator, while at the same time ensuring the operator is properly incentivised to maximise profitability.

Examples – Marriott, Hilton, Radisson, IHG etc.

FAQ

Who owns a management contract hotel?

An owner or developer owns the property and usually keeps financial and legal responsibility, while a management company runs daily operations.

How is the management company paid?

Typically through management fees agreed in the contract, often linked to revenue and/or profit.

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Related reading on this blog

• Chain Hotels: How Hotel Chains Work and Why They Grow
• Classification of Hotels by Location and Clientele
• Classification of Hotels by Ownership: Independent vs Chain Hotels

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About the Author

Sumit Manwal is the founder of Hospitality Vacancy (since 2017) and has 20+ years of experience in hospitality. He received the "Excellence in Hospitality Sector of Uttarakhand" award, presented by Shri Dhan Singh Rawat ji (January 2023), and the Dainik Jagran inext Uttarakhand Ratan Samman for Excellence in Hospitality & Education, presented by Shri Bhagat Singh Koshyari ji (2023). He helps hotels build reliable teams and professionals grow their careers.

📧 Contact: manwal@hospitalityvacancy.com | 🔗 LinkedIn