Performance and operations

Italy

Are Hotel Management Agreements (HMAs) common in the jurisdiction?

HMAs are commonly used for luxury hotels managed under known brands.

If not HMAs, what are the alternatives / what is commonly used?

In transactions concerning a hotel business, the following structures are generally taken into consideration:

• Property Lease Structure: the property is leased by the owner to (the OpCo, incorporated, held and managed by) the manager/tenant, on the basis of a property lease agreement. The manager/tenant is responsible for (incorporating the OpCo), obtaining the licenses and hiring the employees necessary to carry out the business activity within the property. Certain activities can be lease to or operated by third parties, on the basis of business branch leases entered into with the manager/tenant (the Third-Party Lease).
• Business Lease Structure: the property is leased by the owner to the OpCo, incorporated and held by the same owner. The licenses are obtained by the owner. The business going concern carried out by OpCo in the property is leased by owner to the manager on the basis of a business lease agreement. Employees working for the OpCo are hired by the owner or the manager. Certain activities can be leased to or operated by third parties, on the basis of Third Party Lease(s) entered into with the client.
• Pure Management Structure: the property is leased by the owner to the OpCo, incorporated and held by the owner. The licenses are obtained by the owner. The business carried out by the OpCo in the property is managed by the manager on the basis of a management agreement. Employees working for the OpCo are hired by the owner but can be selected/coordinated by the manager. Any Third-Party Leases are entered into by the owner with third-party operators, and the relevant activities can be supervised by the manager. 

Is it common or usual for the HMA to be governed by (i) local laws; (ii) the laws of one of the parties' country of incorporation; or (iii) an alternative jurisdiction?

HMAs concerning hotel businesses in Italy are usually governed by Italian law. 

Are there any significant or unusual points to note in respect of tax on HMA payments in the jurisdiction?

There are no unusual points.

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Italy

Is there a standard contract period of an HMA?

A duration of 20 years is usually negotiated in HMAs for branded operators. A duration of 15 years may be provided, renewable for one or two further 5-year periods. 

Is the term usually fixed? Are early exit or similar options included (contractual or implied)?

The term is usually fixed.  Specific termination rights could be agreed by the parties depending on the specific situation or event or breach of the obligations. Usually a termination right is granted if specific revenue targets are not met.

Is it usual to include fees / liquidated damages for early termination?

Liquidated damages may be discussed and agreed upon by the parties, depending on the transaction.

What is the usual position in respect of renewal?

See Standard contract period, but it depends on the transaction and negotiations between the parties.

Italy

Is there a standard fee structure for HMAs (eg base + incentive)?

Usually a base fee is calculated on revenues and an incentive fee is based on profits. Royalty fees are also provided for branded operators.

What other fees and charges are there (such as royalties, accounting, marketing, license fees, etc.)?

Usually the royalty fees, marketing contributions and other fees for certain centralized services are requested on the basis of specific agreements entered into simultaneously with the HMAs.

Are owners typically required to set aside funds for fixtures and fittings?

Contribution and FF&E reserve are usually requested.

Italy

What are the standard rights / restrictions in respect of transfer / sale of the hotel?

Transfer rights under HMAs can vary widely. Commonly, operators will require consent to any change in ownership of the hotel. There may be restrictions on transfers to competitors, restrictions in relation to financial covenant strength and "reputation" tests.

When a managed hotel is sold (either asset or share deal), is it usual in the jurisdiction that either the Operator's consent is required for the sale, or that the hotel may only be sold if the HMA transfers with the hotel?

Usually the operator requests the insertion of these specific clauses into HMAs.

Do HMAs commonly include a right of first refusal for the operator to purchase the hotel?

Yes.

Is it usual to include provisions which enable the sale of the property with vacant possession ie without the brand?

Such a clause should be expressly negotiated and would imply an early termination clause of the HMA.