The global hospitality industry is huge. From hotels and restaurants to theme parks and cruise lines, this sector employs hundreds of thousands of people all over the world and is subject to a wide and ever-changing set of regulations.
Douglas Wignall, consultant solicitor with Cubism Law, here talks to Lawyer Monthly about the complexities involved in his work, his thought leadership, and touches on the ins and outs of drafting the kinds of contract agreements he deals with.
What are the key challenges you face on a day to day basis, specifically in terms of contract drafting? How do you overcome them effectively?
The key challenge for me, if I am acting for a hotel owner in a management contract negotiation, is to recognize that each hotel owner will have different concerns regarding his legal/commercial relationship with the hotel operator and what could be a key issue for one hotel owner may be of no concern to another and vice versa. Hotel owners vary considerably in their priorities depending on whether they are developers, investors, institutions, entrepreneurs or governments, and depending on the region and country in which the project hotel is located. Therefore the amendments, additions and deletions to the management and related agreements you negotiate for one owner, with a particular operator, may be totally inapplicable in the management agreement negotiations with the same operator for another owner.
What considerations do hospitality companies such as hotels and restaurants need to be aware of in regards to regulation in the UK? How do you assist in this regard?
The law affects the hotelier in many more ways than most other industries. It involves, for example, contracting with guests and customers, suppliers, employees and professional advisers; complying with regulations/laws by central and local government (licensing, health and safety, food standards , consumer protection all spring to mind); also you need to be aware of the hotelier’s liability as an occupier and his liability for the property of guests and of many other areas of the law such as race relations, sex equality and potential legal issues arising from the letting of banqueting rooms and the hiring of entertainers, to name just a few.
I spend a fair bit of time keeping on top of all the areas of law which affect my hotel clients and on which I might be called upon to give advice. I have also prepared legal audits or checklists itemising all the elements of hotel operations and how best to implement them whilst staying on the right side of the law. I prepare this in the form of a questionnaire, which I would go through with the owner or general manager of the hotel, and if need be their key staff.
Can you detail a recent project you have advised on to which you applied particular thought leadership? What were the complexities involved?
I acted for the Government of a country with a stunning coast line, 30 hectares of which it wished to lease to an operator for the operation of two luxury hotels and one five star hotel. The ‘country’ only actually became an independent country sometime after I became involved in the project and, being recently part of a communist state, my client instinctively thought of the Government as all powerful and able to deal with problems as and when they arose, and not to predict and plan for them in advance. There were many problems, the foremost of which was the fact that there were no established leasehold laws or precedents, and several laws had to be passed for this project to happen. There were also issues relating to title, rights of way and with the employees of the existing hotel which had to be shut down for two years during upgrading.
During the negotiations my client came round to a more Western way of doing business and we were able to incorporate in the lease provisions dealing with most potential problems or issues that arose. It was a fascinating project not just for its legal issues, but for its quasi-political dimensions and for the need for all the players to adapt to a new business mind-set.
What are the challenges involved in drafting management agreements in the hospitality sector?
I have drafted several template hotel management agreements on behalf of either start-up hotel operating companies or established hotel operating companies entering into management agreements for the first time. The challenges I am faced with vary considerably from client to client, but here are some examples:
- Typically my client (in this case, the operator) is looking for an agreement which is without risk, without liability and is non-terminable and, at the same time, is so comprehensive and simple to understand that it can be negotiated quickly by the operator’s representatives (ideally without the involvement of lawyers). My challenge is to steer a course between the two and draft an agreement which is both legally and commercially acceptable to my client and, at the same time, is a practical, effective and workable document;
- It is usual for a branded operator to offer services in addition to the management of the hotel such as technical services, international marketing and other centralised services, a licence to use the brand etc. A decision will have to be made whether all the services should be incorporated into one or several agreements and, if so, how many? In making this decision consideration should be given as to whether all the services will be undertaken by the operating company or some services by one or more affiliates of the operating company. There may be tax considerations as well, particularly if some services, such as centralised services, are being provided from a different country to the one in which the hotel is located;
- There can be no such thing as a ‘standard’ management agreement. There are too many complexities involved in the relationship between the operator and the owner to draft an ‘off the shelf’ template. The Heads of Terms agreed between owners and operators vary significantly and there may well be other practical or legal considerations to take into account, which will affect the drafting of a specific management agreement. For example, the laws of a specific country may make it unlawful to employ or otherwise deal with employees in the way contemplated by the template agreement. The template should therefore be drafted in such a way to make it easily adaptable to the many additions, deletions and amendments, which will inevitably have to be made to each specific management agreement.
How does being a member of the Associate of Hotel Solutions Partnership help you expand your boundaries and boost your thought leadership in hospitality law?
Hotel Solutions Partnership (HSP) is an association of over 40 independent consultants each with at least 10 years’ experience and which, collectively, embrace substantially all the areas of expertise associated with the hospitality industry including services related to acquisition, development and operations. By being part of a team of hospitality consultants, HSP has helped me expand my boundaries by applying my services to matters not exclusively involving the law. Two examples:
- HSP’s client was a multinational corporation with a small hotel subsidiary. HSP was appointed to set up the process of developing the hotel subsidiary’s brand internationally by way of management agreement. I was asked to prepare a programme for setting up all the documentation required to operate a hotel on behalf of a third party owner under a management agreement and also to determine the legal process that should be undertaken and the matters that will need to be considered by an in-house lawyer on being instructed on a new hotel project;
- As part of the consulting team, I have been primarily involved in negotiating the commercial as well as the legal terms of Letters of Intent with short listed operators during the operator selection process.
