What contracts should the hotel owner and a management company sign?

Experience in the Russian tourism industry shows that in each specific case, the owner and management company create a separate set of contractual obligations.

There is no specific form of business management contract as such, but in practice, it is a combination of several agreements that do not conflict with Russian law.

Specifically, according to Article 421, paragraph 3 of the Civil Code of the Russian Federation, the parties have the right to enter into an agreement that contains elements of various agreements provided for by law or other legal acts (a mixed agreement). The rules governing the agreements whose elements are contained in the mixed agreement apply to the parties' relations under a mixed agreement, in the relevant parts, unless otherwise provided by the agreement of the parties or the nature of the mixed agreement.

Moreover, the nature of the contractual relationship directly influences both the methods of accounting for business transactions and the primary documents that may arise at any stage of the transaction. In turn, the order of accounting entries under contracts has a significant impact on the formation of the hotel complex's income and expenses. This clearly demonstrates the importance of defining the basic elements of the agreement for reflecting actions in accounting.

A number of specific standards are used as a basis for establishing the relationships between the parties.

So, after exchanging basic information and reaching a common denominator, both parties continue the negotiation process.

In some cases, a confidentiality agreement may be concluded at this stage.

In this agreement, the management company presents a proposal for cooperation, briefly outlining all possible forms of interaction, the basic concept of the property, and other necessary information.

Once the parties have fully agreed on the cooperation, a Memorandum of Intent is signed, outlining the key parameters of the future partnership, namely, all the terms of the technical support, lease, or management agreements, etc.

The next stage is the Technical Support Agreement, which provides for the management company's support of the hotel project, from design to opening. This contractual agreement allows the owner to delegate all concerns to the management company.

The Hotel Management Agreement plays a key role among the agreements, being the "most important" document. The previously listed agreements are a kind of supplement to it, revealing the essence of the cooperation in more detail.

The final stage of the contractual agreements is the Hotel Management Agreement, which is signed only after construction is completed and all technical issues have been resolved.

Important: do not confuse the management agreement with the property trust agreement, as in this situation, the key characteristic of trust management—the transfer of property—is absent.

Summary of contractual agreements for hotel complex management:

1. The owner retains ownership of the property;
2. The management company becomes the operator of the property;
3. The property is operated by a management company in accordance with international standards.
4. The management company's interest in business results is enshrined in an agreement on incentive payments upon reaching a certain gross profit threshold.
5. The owner is guaranteed a certain level of profitability.
6. The owner's profit from business operations is higher than with independent management.
7. The owner's risks are lower than with independent management.