Hotel Law: Issues & Events

There is not a single area of a hotel's operation that isn't touched by some aspect of the law. Hotels and management companies employ an army of lawyers to advise and, if necessary, litigate issues which arise in the course of conducting their business. These lawyers typically specialize in specific areas of the law - real estate, construction, development, leasing, liability, franchising, food & beverage, human resources, environmental, insurance, taxes and more. In addition, issues and events can occur within the industry that have a major impact on the whole, and can spur further legal activity. One event which is certain to cause repercussions is Marriott International's acquisition of Starwood Hotels and Resorts Worldwide. This newly combined company is now the largest hotel company in the world, encompassing 30 hotel brands, 5,500 hotels under management, and 1.1 million hotel rooms worldwide. In the hospitality industry, scale is particularly important - the most profitable companies are those with the most rooms in the most locations. As a result, this mega- transaction is likely to provoke an increase in Mergers & Acquisitions industry-wide. Many experts believe other larger hotel companies will now join forces with smaller operators to avoid being outpaced in the market. Companies that had not previously considered consolidation are now more likely to do so. Another legal issue facing the industry is the regulation of alternative lodging companies such as Airbnb and other firms that offer private, short-term rentals. Cities like San Francisco, Los Angeles and Santa Monica are at the forefront of efforts to legalize and control short-term rentals. However, those cities are finding it's much easier to adopt regulations on short-term rentals than it is to actually enforce them. The December issue of Hotel Business Review will examine these and other critical issues pertaining to hotel law and how some companies are adapting to them.

Library Archives

William A. Brewer

A wave of mergers and acquisitions purport to help management companies capitalize on emerging markets, generate cost efficiencies, and position themselves more favorably with customers, vendors and employees. However, the most important constituent to the future success of today's mega-brands may be owners. In this article, we explore the legal rights and responsibilities of owners asked to adapt to changing brand concepts, new brand standards, and shifting dynamics in the marketplace. Owners are facing new challenges - and coming to the realization there are ways to respond to the “invisible hand” that may be working against them. READ MORE

Robert Lannan

Over the past decade, many hotel owners and management companies have looked to independent restaurant concepts—often associated with celebrity chefs—to increase revenue and enhance hotels' images and guests' experiences. One way to do this is to lease space to a celebrity chef's company (a “ChefCo”) and allow the ChefCo to operate the restaurant independently. A similar approach is for the hotel owner to enter into a management agreement with the ChefCo—separate from the management agreement with a hotel management company for the rest of the hotel. A third approach is for the hotel management company to subcontract management of the restaurant to the ChefCo. READ MORE

Patricia Mahlstedt

Given the number of hotel management companies in the United States, it's no surprise these companies are as active in the merger and acquisition arena as any other industry. For hotel operators who don't own the businesses they operate, their contracts with hotel owners are the “assets” to be combined in such a transaction. When hotel operators combine (through merger or asset acquisition), it's easy to focus on obtaining required owner consents. In addition, however, the parties must address operational transition matters long before the deal closes - they should be considerations even while the transaction agreement is being drafted. READ MORE

John Opar

The relationship between a hotel owner and its operator is on one level a cooperative one, with the parties working together to maximize value for the owner's hotel and the operator's brand. However, close examination of the relationship reveals the inherent tension between the parties, as the owner seeks to maximize its net return on investment in the bricks and mortar and the operating business that it is acquiring or developing, and the operator seeks to maximize its profit from revenue-based fees and sundry charges while at the same time protecting and enhancing its brand reputation. READ MORE

Lynn K. Cadwalader

It is important during this exciting time of innovation to seize the moment and creatively adapt to the changing concept of hospitality, capitalize on new trends and expand market share. While the new hospitality market disrupters may threaten traditional hotel business models, they also present an opportunity for the entry of new products into an industry which has always prized itself on innovation and creativity. Business travelers, vacationers and millennials have all begun to demand inclusion of new hotel products into their travel. It will be up to the hospitality industry to join the movement and incorporate these concepts into their platforms and brands. READ MORE

Francesca A. Ippolito-Craven

Cities and counties throughout the United States have enacted regulations in an effort to balance individual property rights with protecting the character and viability of neighborhoods and communities. There is also a mandate to also stimulate the housing economy, maintain property values, and promote fair competition within the hospitality industry. While the future of such efforts remain uncertain, it is clear that the interests of the hospitality industry would be best served by way of the industry’s involvement in the legislative process. READ MORE

Theodore C. Max

The surge in mergers and acquisitions in the hospitality industry presents a great opportunity for companies to take advantage of advances in technology and innovation to create transactions afford competitive advantages and returns due to the enhanced scale and scope of the resulting entity by acquisition or merger. In order to succeed on the national or global stage, the acquiring company must take advantage of its skill and talent to effectively and expeditiously integrate the target company with its own operating systems, methods and culture. READ MORE

John R. Hunt

In the past several years, the pace of mergers and acquisitions in the hospitality industry has accelerated greatly. The scale of these transactions has ranged from the merger of multinational corporations to the purchase and sale of numerous businesses of varying sizes. At the same time, the risk that an acquiring company may find itself liable for its predecessor's employment and labor problems has increased steadily. As a result, any company contemplating the purchase of another hotel or restaurant business should review the current law in this area and in certain circumstances, conduct an audit or thorough review of the seller or target company's employment practices. READ MORE

Robert E. Braun

Over the past decade, hotels have consistently been cited as one of the most likely sources of data breaches – a dubious honor for an industry that relies on confidence. This is a particular challenge because hotels and hotel brands rely on loyalty and trust, and consistent publicity about the insecurity of hotel systems creates the opposite perception in the public. Much of the vulnerability of hotels can be traced to the structure and business needs of hospitality properties, as well as the implementation of new technologies and consumer demands. What can hotel owners and operators do to counteract the trend? READ MORE

Christian Hardigree

Our industry is the most dynamic industry on the planet – one that is constantly changing, often at a frenetic pace. Our industry resides in every corner of the world, and attracts individuals (our guests) from across the world to spend time with us. One area that will see significant changes over the next five years relates to state minimum wage laws in the US. While the federal law remains at $7.25 per hour for most positions (less for employees in tipped positions if the states recognizes the tip credit wage), many states are implementing minimum wage laws that exceed the federal floor. READ MORE

Nelson Migdal

Don't do it! At least not without some serious thought to be sure there is simply no other way to go. With some very high profile cases of a hotel owner removing the hotel manager founded on common law principles of agency that give a hotel owner the power to revoke the agency, hotel owners and hotel managers might be tempted to rely on agency law as a "Plan B" if the owner-manager relationship sours despite what is in the hotel management agreement. Consider that this might not be the best laid plan as between an owner and manager. READ MORE

Michael B. Newman

Imagine you are a hotel executive for a large, regional hotel chain and on the brink of closing a significant transaction for the purchase of another hotel chain with locations throughout the United States. You receive a frantic telephone call from the general manager of your outside management company. “Is the seller prepared to make the requisite change of control notifications for the alcohol beverage licenses with the various state and local alcohol beverage agencies?” This is the type of question that is best planned for in advance of any merger or acquisition transaction involving an alcohol beverage-licensed hotel business. An analysis of this question will be covered in this article. READ MORE

Charles B. Rosenberg

This article introduces international investment treaties and explains their important role in cross-border Merger & Acquisition deals. Hotel companies engaging in cross-border Merger & Acquisition transactions should consider investment treaty protection as part of their due diligence to identify the rights they may have and to strategically decide how to most efficiently and effectively structure their international investments. By carefully structuring investments at an early stage in the M&A process, this article explains how hotel companies can often improve their negotiating position and secure important protections from harmful governmental interferences. READ MORE

Jerome G. Grzeca

A change in your management company means more to foreign national employees than it does to most others at your hotel. It could mean a potential loss of work authorization and a violation of status in the United States. Because most management companies “sponsor” foreign national visa holders, when the company changes, the petitioning entity changes. When the petitioning entity changes, an amendment of the current visa classification, or a petition for a new visa classification, must be filed in advance of the change. If not, the new company may be jeopardizing the ability to retain key executive and management employees who need to remain in valid status. READ MORE

Benjamin M. Ebbink

The past few years have witnessed a number of high-profile mergers and acquisitions in the hotel industry – a trend that some commentators have referred to as a “merger frenzy.” This trend may have broad repercussions across the industry, as large hotel companies seek to join forces with smaller operators to avoid being outpaced in the market. Aside from the general impacts on the hotel industry as a whole, mergers and acquisitions can raise significant labor and employment issues that operators need to keep in mind. A fundamental issue involves whether the transaction involves a sale of stock or a sale of assets. READ MORE

Banks Brown

Short Term Rentals Companies (“STRs”) are companies that have an internet booking platform which facilitates and participates in the short-term transient rental of private homes and apartments. Participants in the market are, for example, Airbnb, HomeAway, and onefinestay. The model is often described as part of the sharing economy, in the sense that it facilitates the “sharing” of residential space between transient guests and the primary occupant of that space. The companies are said to be “disruptors,” because their business model differs from accepted models in an industry. It is difficult to determine what they are. READ MORE

Coming up in April 2018...

Guest Service: Empowering People

Excellent customer service is vitally important in all businesses but it is especially important for hotels where customer service is the lifeblood of the business. Outstanding customer service is essential in creating new customers, retaining existing customers, and cultivating referrals for future customers. Employees who meet and exceed guest expectations are critical to a hotel's success, and it begins with the hiring process. It is imperative for HR personnel to screen for and hire people who inherently possess customer-friendly traits - empathy, warmth and conscientiousness - which allow them to serve guests naturally and authentically. Trait-based hiring means considering more than just a candidate's technical skills and background; it means looking for and selecting employees who naturally desire to take care of people, who derive satisfaction and pleasure from fulfilling guests' needs, and who don't consider customer service to be a chore. Without the presence of these specific traits and attributes, it is difficult for an employee to provide genuine hospitality. Once that kind of employee has been hired, it is necessary to empower them. Some forward-thinking hotels empower their employees to proactively fix customer problems without having to wait for management approval. This employee empowerment—the permission to be creative, and even having the authority to spend money on a customer's behalf - is a resourceful way to resolve guest problems quickly and efficiently. When management places their faith in an employee's good judgment, it inspires a sense of trust and provides a sense of higher purpose beyond a simple paycheck. The April issue of the Hotel Business Review will document what some leading hotels are doing to cultivate and manage guest satisfaction in their operations.