How Does A Management Agreement Work

The most interesting questions arise in contracts in which one of the parties can terminate the contract „for no reason.“ These provisions are almost always accompanied by „liquidated compensation clauses“ which provide for payment to the management company in the event of termination. If the management company has complied with its contractual obligations but is terminated before the contract expires, it is appropriate for the company to receive some compensation. It is important to negotiate this figure in advance and preferably provide a fixed amount that the owner can budget if the owner decides to take back control of the day-to-day operation of the hotel before the contract expires. The management company will likely require a termination payment based on the remaining term of the contract at the time of termination and on the average monthly payment to the management company prior to termination. A typical provision would multiply the remaining months of the contract by a percentage of the average monthly amount that the management company earns before termination. These companies often do not have the resources to make the board of directors responsible for day-to-day operations. This may be due to budgetary constraints, as the recruitment of full-time staff can be much more expensive than transferring operational control to a management company. When such a contract is concluded, the management company tends to take operational control of things such as meeting planning, communications management, accounting, etc. Depending on the organization, the management contract may also include elements such as managing websites or implementing various sponsorship programs. Finally, you should keep in mind the general issues of conflict of interest. If you are using a large management company, you should be aware of the possibility that the company is also involved in your competitors. You want to make sure that the management company resolves these potential conflicts of interest with the interests of your business.