Legal Q&A: Smoothing out the hotel and restaurant relationship

When a third party operates a restaurant at a hotel, the relationship is generally structured in one of the following ways: lease (landlord/tenant relationship only), license or franchise, management, or consulting. Larger hotel properties may have one or more outlets operating under one or more of these various structures and depending on the parties’ desires, structures can be blended. The main theme of these negotiations tends to be control—which relates to who bears the majority of financial risk and potential financial upside.

For hotels operated by a separate party, additional concerns arise that are common to managed hotel relationships, generally relating to how or whether the hotel owner or operator will interact with the restaurant. The operator will usually prefer to be identified as the hotel owner’s representative with authority to act on its behalf; however, owners may need or want to get involved if, for example, major renovations to the restaurant space are required. Hotel operators should also think through how various structures may impact their compensation in the underlying hotel management agreement. Introduction of a third party to own, operate or brand the restaurant operations will require some kind of allocation of common revenues or expenses. 

Finally, when considering a structure in which two brands will be present and perceived by consumers, before approaching the other party to begin negotiations, one of the most important factors to consider for many hotels and restaurants is how and whether the two brands will “fit.” Two well-known brands should spend a lot of time internally determining whether adding a second brand will support and add value to their own brands. A good brand fit may help a smooth operational relationship. Short of legal damage to trademark rights, selecting the wrong brand in this physically and contractually integrated setting can do serious reputational damage to both the hotel and restaurant.

Virtual Event

HOTEL OPTIMIZATION PART 2 | SEPTEMBER 10 & 24, 2020

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The relationships described above are not mutually exclusive, and variations occur with greater frequency as the hotel-restaurant relationship evolves. Issues identified above are each worthy of a few moments’ consideration when building a relationship between a hotel and a third-party operator, licensor or franchisor. Even a general understanding of a party’s position about control of physical space, brand and intellectual property licensing, and employment concerns can shape the parties’ selection of a structure or alter it once negotiations begin.

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