Trends In Hotel Branding: Hyper-Specificity

Posted in Brand Management, Hotels

It’s long been said that a successful brand understands its audience. This has been true of hotels, as the major internationally-branded hotel operating companies have developed and continue to develop various brands to service and cater to a wide array of guests and their specific preferences and assumed preferences. These hotels often have a variety of brands, and each brand is intended to target a particular type of customer (for example, a business traveler, the millennial traveler, the independent vacation traveler) at a particular price point. More recently, and with the entry of many non-traditional hotel competitors into the market, it has become increasingly important for hotel brands to target customers more precisely and directly.

Many brands have developed specific themes to set themselves apart and attract specific customer segments. One major demographic that virtually all hotel brands seek are millennials. Some brands design properties to encourage social interaction between guests outside of the guest room through live music and communal pool tables, while keyless entry and free Wi-Fi appeal to the technologically-inclined and connected young traveler.  Then there are the health conscious or “wellness” hotels.  A stay in these hotels might include organized morning runs, complimentary yoga mats in each room, 24-hour gym access, healthy food options, and aerobics channels presented every time you turn on your television.

This trend toward increased theme specificity is global in scope and appeal. Recently, Patrick Landman of GreenShoes Hospitality wrote an article titled, “How to Develop a Successful Hotel Concept.”  In his article, Landman writes that the “legacy form of segmentation was simple: business or pleasure. But, it’s not enough in this day and age. To be effective, it must go much further. Holistic, deep segmentation will go a long way towards informing your hotel concept.” Landman further discusses a hotel’s need to understand what makes it distinctive and combining a hotel’s best attributes to provide a unique experience and concept.

Developing a strong and focused theme will remain crucial to owners and hotels alike, to find ways to distinguish themselves from the increasing list of competitors in the industry. This trend appears to be only getting stronger as technology develops and globalization continues.

GT Guides Developer on Major ‘Six Senses’ Resort Planned in Northeastern Brazil

Posted in Firm News, Hotels

Global law firm Greenberg Traurig, LLP advised the developer of the Six Senses Formosa Bay Resort planned for Rio Grande Do Norte, Brazil. The firm acted as international hospitality counsel, in cooperation with Brazilian law firm Koury Lopes Advogados. 

The Formosa Bay Resort is to be managed by Six Senses, which operates resorts worldwide. According to the developer, an entity owned by international businessman Greg Hajdarowicz, the resort will be one of Six Senses’s first projects in South America. 

“This was a remarkable opportunity to work with one of Poland’s most prolific entrepreneurs on a unique ecological resort in an emerging tourist destination,” said Jaroslaw Grzesiak, managing partner of the law firm’s Warsaw office.

According to published plans, the resort will include 185 villas, 58 of which will include Six Senses residences, to be made available for private ownership. The seven kilometer long coastline on which the resort will be built is owned by the developer.

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Case Law Update: The Potentially Alcoholic Member

Posted in Clubs, Court Cases

A recent decision from a Florida District Court of Appeal shows that dram shop cases against clubs are fact dependent and difficult to resolve by summary judgment without a trial. Gonzalez vs. Stoneybrook West Golf Club, 2017 WL 2988826 (Fla. 5th DCA July 14, 2017).

In Gonzalez, a car driver was killed in a car accident with a golf club’s member after the club member had consumed alcohol at the club.  The estate of the deceased driver sued the club for wrongful death pursuant to Florida’s reverse dram shop law.  Fla. Stat. § 768.125 (2014).  The reverse dram shop law provides that a vendor serving alcoholic beverages is not liable for damages resulting from a purchaser’s intoxication unless the vendor serves the purchaser knowing that he or she is habitually addicted to alcohol.  The District Court of Appeal reversed the trial court’s summary judgment order in favor of the club.  The court concluded that the plaintiff “offered sufficient evidence to raise a factual dispute not resolvable by summary judgment as to whether [the club member] was habitually addicted to alcohol and, if so, whether [the club] knew of his addiction.”  The evidence showed that the club member had played golf at the club approximately 70 to 80 times over a three year period and one of the club member’s playing partners testified that the club member was intoxicated virtually each time they played together.

The case illustrates the challenges a club faces in dealing with a member who drinks alcohol excessively on a regular basis.  The mere fact that the member drank excessively created a factual question as to whether the club knew that the member was habitually addicted to alcohol.

Case Law Update: Club Liability Release

Posted in Clubs, Court Cases

Clubs regularly require new members to sign liability releases, some of which are drafted quite broadly.   A recent decision from the New Jersey Appellate Division considered the enforceability of such a provision. Crossing-Lyons vs. Towns Sports International, N.J. Sup. Ct, App. Division (July 11, 2017).

In Crossing-Lyons, a fitness club member sued the club after sustaining a substantial hip injury as a result of tripping over a weight belt that a club trainer was alleged to have failed to remove.  The trial court dismissed the lawsuit pursuant to a summary judgment order based on the member having signed a liability release which included the following language:

[y]ou . . . agree that if you engage in any physical exercise or activity, or use any club amenity on the premises or off premises, including any sponsored club event, you do so entirely at your own risk[.] You agree that you are voluntarily participating in these activities and use of these facilities and premises and assume all risks of injury, illness or death[.]

The appellate court reversed the trial court.

The court held that the liability release was unenforceable because it was adverse to the public interest and unconscionable. The court noted that the club member was hurt tripping over a weight belt, not using the fitness equipment.  The court believed that the case was more like Walters vs. YMCA, a slip and fall case in which the court also reversed the trial court’s dismissal of the case, than Stelluti v. Casapenn Enterprises, a case where the club member was injured while participating in a spinning class at a private fitness center, which the court felt involved an inherent risk of injury.  This distinction suggests that the court might have found the liability release to be enforceable had the club member been injured while engaged in an inherently dangerous activity directly related to membership in the club.

Third Party Management for Hotel Lodging and Food and Beverage Services

Posted in Hotels, Management Agreement, Uncategorized

A sensitivity remaining from the recent “Great Recession” is that hotel owners are making a concerted effort to ensure that their hotel and all components of it are profitable.  This is something that is aspired to but not assured in a hotel management agreement.  To this end, many owners seek assistance in negotiating third party management agreements for their lodging and food and beverage services.  Typically, the compensation to the manager is split into two components: base fee and incentive fee.  The base fee compensates management for their ability to generate gross revenue.  It is the fee to keeping the doors open and the lights on and is generally calculated by taking a percentage of hotel gross revenues.  Most published sources benchmark the base fee percentage for hotel management typically from 2.5 percent of gross revenues to 4 percent of gross revenues.  Since the base fee is calculated on gross revenues, it is not an indication of profitability or how efficiently management runs the hotel. The ability for management to contain expenses and generate an operating profit is not addressed in the base fee.

The incentive fee has been characterized as the place to align the goals of hotel owners and managers.  While the structures of incentive fees vary widely, the idea behind them is to incentivize managers to conduct business efficiently and generate a profit for the owner.  Negotiations for incentive fees are often contentious, as there are a number of factors that can go into their calculation.  The basic structure of incentive fees is a percentage of gross operating profits (gross revenues minus certain operating expenses).  Average or “market” incentive fees are challenging to benchmark because they can vary in different segments of the business, such as luxury hotels as compared to full service upscale hotels, but it is often a percentage of gross operating profits, and often after the owner is paid an owner’s preferred return.  The goal of the owner is to use incentive fees to compel managers to manage operating expenses and have cash drop to owner’s bottom line.

Similar structures exist in the negotiation of third party food and beverage management agreements.  Hotel owners who wish to maintain control over the financial upside of having a restaurant, but want a third party with expertise in restaurant and/or lounge operations to handle those tasks will opt for a third-party operating agreement. Although it is common for the hotel operator to be the food and beverage operator, that is no longer assumed and Hotel manager run food and beverage services can coexist with third-party operated restaurants, lounges and roof top entertainment venues. Under food and beverage management agreements, the owner pays the manager a base fee calculated on gross food and beverage revenues. In most cases, the parties also negotiate incentive fees based on management achieving certain financial targets.  Contrary to the straight-lease scenario, these third-party management agreements offer hotel owners more control and earning potential (owners can receive all profits minus management fees), but they also force owners to assume additional responsibility and financial risk associated with the food and beverage operation.

Food and beverage management agreements are now as long and complex as the hotel management agreement, so the same degree of caution and care must be exercised in their structure and negotiation.

Playing Host

Posted in Brand Management, Hotels, Management Agreement

Hotel Management magazine recently noted that at the end of the day, it is the hotel management company that is really playing host to the guests as it executes the requirements of the brand and the desires of the owner.  But how does the hotel management company do this for the owner from the lawyer’s view?  The relationship of hotel owner and hotel manager is governed and memorialized in the hotel management agreement.  Hotel management agreements terms vary greatly depending on the circumstances of the project, who or what the owner is, the owner’s investment horizon and the size and sophistication of owner’s personnel.  There are management agreements with large international hotel management companies, third party managers that do not have their own brand, boutique and lifestyle managers, and regional and local hotel managers that often manage franchised hotels.  Even with the variations among hotel management agreements, there are common themes that should always be the focus of attention in the hotel owner and hotel manager conversation.

Managers, of every type, style and kind will begin the process and produce the initial forms of all operative documents.  The manager will deliver to the owner the form of management agreement that the manager has developed and refined over time based upon the manager’s cumulative experiences with many owners and any relevant judicial decisions and laws.  It is from this point that the owner will be negotiating.  It is a simple fact of hotel legal practice today that a mature, well-developed and robust hotel management company will begin the process with its documents and the preparation of the definitive agreements will proceed from there.  The hotel owner will be reacting to what the manager has drafted into its standard form documents, and not the other way around.  While we believe it is a best practice to involve the legal team in the negotiation of the owner’s letter of intent with the manager, because many points are won or lost at this early stage, the management agreement is the vehicle to clarify and revisit points an owner may have overlooked.

Owners and managers share a need to address all aspects of their relationship.  Here are some key elements to address, but each can be a minefield for the unknowing and require careful assessment as part of the conversation.

  • Term.
  • Management Fees.
    • Base Fees
    • Incentive Fee
    • Centralized Services Fee
    • Reservation Fee
    • Accounting Fee
    • Technology Fee
  • Owner’s Preferred Return based on the Owner’s Total Investment.
  • Termination-on-Sale or conversion to Franchise.
  • Performance Test Termination Rights.
  • Subordination, Non-Disturbance and Attornment with Lenders.
  • Labor and Employment.
  • Indemnification.
  • Radius Restriction or Area of Protection Restriction.
  • Budgets.
  • Cash Management.

By the very nature of the management agreement, the hotel owner puts its trust in the manager to provide a meaningful guest experience while preserving the value of the owner’s investment.  The challenge is in creating the appropriate legal framework for that to occur.

Case Law Update: Covenant to Operate Golf Course

Posted in Clubs, Court Cases

Vista Golf v. Vista Royale Property Owners Ass’n, Florida 4th District Court of Appeals (May 13, 2015)

This was a case where an owner of a golf course that was subject to covenants to operate the golf course and keep it as a single parcel was seeking to nullify the covenants. Specifically, the golf course was subject to a covenant to continuously operate the property as a 27 hole golf course and a “unity of title” covenant that required the owner to hold, sell, or lease the property as a single parcel. The original developer placed the covenants on the golf course “for the purpose of enhancing and protecting the value, desirability and attractiveness of the condominium communities” that adjoined the golf course.

The trial court concluded that the golf course owner could not be affirmatively compelled to operate a golf course business. Interestingly, the property owners association did not appeal such ruling, and therefore, the appellate court did not discuss it. The trial court may not have wanted to enforce a covenant that might require the owner to raise capital and potentially lose money. Some courts are reluctant to enforce affirmative covenants that require the land owner to undertake an action compared to restrictive covenants that restrict a property owner from using the property in a certain way. See City of New York v. Dellafield 246 Corp., 662 N.Y.S.2d 286 (App. Div. 1997).

The trial court interpreted the covenant to operate the golf course instead as a restrictive covenant that prohibited the property from being used or operated as anything other than a 27 hole golf course. The District Court of Appeals affirmed the trial court interpretation, stating that it was the only reasonable interpretation. The court explained that when one interpretation of a contract is absurd and another reasonable, the contract should be interpreted in the reasonable manner.

The trial court nullified the unity of title covenant that required the land to be held as a single parcel. The District Court of Appeals affirmed on the basis that the covenant was an unreasonable restraint on the alienation of the property.

Although one who takes title to a golf course that is subject to a covenant to operate may find a court reluctant to enforce the covenant, this court decision suggests that the golf course owner should not assume that the court will ignore it and as such, the owner may not be able to convert the course to another use. However, the court’s decision to nullify the unity of title covenant may suggest that a court would not object to the owner reconfiguring the golf course so as to develop a small piece of it.

Nevada Gaming Regulators Begin Overseeing Las Vegas Nightclubs and Dayclubs

Posted in Casinos, Clubs, Nevada

The nightclub and dayclub industry has become big business for casinos along the Las Vegas Strip. State gaming regulators are now requiring resort operators to take a more stringent approach in monitoring activity inside club venues. These new regulations came out of the 2015 Nevada Legislative session and were approved by the Nevada Gaming Commission.

Under the new regulations, casinos will designate an employee to oversee and monitor the clubs. That employee must be licensed under state gaming regulations as a key employee. Also, promoters and independent hosts for the clubs will have to file written agreements and register with the Nevada Gaming Control Board.

Clubs are a big draw for Las Vegas tourists, particularly the younger customer base that spends time on the Strip enjoying the many lucrative non-gaming entertainment attractions, rather than gambling. According to the Nevada Gaming Control Board, more than 60 percent of the total revenue generated by Las Vegas resorts last year came from non-gaming sources, such as hotel rooms, shopping venues, restaurants, entertainment attractions, and clubs.

Other U.S. jurisdictions and tribal gaming markets are beginning to mirror Las Vegas’s push to add non-gaming attractions. Other gaming regulatory bodies may elect to adopt club venue regulations like Nevada’s.

The club venue regulations identify certain acts as unsuitable methods of operation and expand the requirements for reporting criminal violations. The clubs are also required to file annual reports on their activities.

Additionally, the club venue regulations impose a new registration requirement upon all club venue supervisors, managers, security and surveillance personnel, servers, server assistants, bussers, restroom attendants, and anyone employed or contracted to offer hosting or VIP services.

Security and safety requirements are also included. Operators must assess their calendars on a regular basis to consider the impact on attendance and determine the appropriate number of security personnel needed for an event.

Clubs must also abide by certain requirements for emergency medical support depending on the anticipated size of their events.

Nevada Gaming Commission Chairman Tony Alamo Jr. said the clubs have been good for the gaming industry, providing an economic “shot in the arm.” However, he also said that the clubs need to be controlled and regulated. “I believe these regulation changes do what we set out to do,” Chairman Alamo said.


Fore more information on the regulation of casinos and nightclubs in Las Vegas, please subscribe to this blog or see our Gaming blog, “Covering the Spread.”

STR Making Changes

Posted in Hotels, Management Agreement, STAR Report

STR is making changes to the highly regarded and widely used STAR Report.  Those of us who spend time drafting, reviewing, negotiating, and understanding hotel management agreements know that an important element of a management agreement is the Performance Test, and that a critical element of the typical two pronged performance test is the RevPAR threshold as compared to the hotel’s competitive set.  The guidelines that will go into effect on Jan. 1, 2017, are designed to recognize and accommodate for recent (and probably continuing) consolidation in the hospitality industry, and achieve a better balance within the competitive set.  One very important clarification in the new guidelines is that the competitive set would have not less than 4 hotels, excluding the subject hotel, and include at least 2 management companies, also excluding the subject hotel.

The new guidelines may be very helpful, and all parties to management agreements should consider the implications.  That being said, remember that not all management agreements permit changes to the initial competitive set.  Parties to management agreements should consider examining the existing management agreement to assess the potential for competitive set revisions while also reviewing the new guidelines.

For more information on the new guidelines, click here.

Case Law Update: Membership Deposit Refund Amendment Overturned

Posted in Clubs, Court Cases

Verandah Development v. Gualtieri, Florida 2nd District Court of Appeals (February 17, 2016)

This case provides insight to clubs with refundable memberships who want to amend a membership document provision related to refunds or resigned membership resale.

The plaintiff member’s Membership Agreement provided that members who “resign their membership will be refunded their initiation deposit previously paid subject to a ‘one in, one out’ refund policy.” The Club amended the Membership Plan to provide that the Club would pay resigned member refunds on a one in three basis.

The plaintiff members resigned their membership after the Membership Plan amendment, and when they were told of the amendment, they filed a breach of contract suit.  In support of its position that the plaintiff members were subject to the new one in three refund policy, the Club cited to the provision in the plaintiffs’ Membership Agreement in which they agreed “to be bound by the terms and conditions [of the Membership Plan] as the same may be amended from time to time.” The trial court entered summary judgment for the members, and the appellate court upheld the decision. The court reasoned that the club’s unilateral Membership Plan amendment right applied to facilities use privileges, not the refund policy, which was a vested right.

The appellate court did overturn the trial court’s ordering the Club to pay the refund immediately to the plaintiff members. The court explained that an immediate refund would have placed the members in a better position than the members would have been under the one in, one out policy.

Although this decision may be cited by members of other clubs that amend membership documents in a manner that impacts membership deposit refunds, it should be noted that the language of the plaintiff members’ Membership Agreement differs from that of most clubs with refundable membership, in that the one in, one out provision was part of the refund provision and was actually in the member’s Membership Agreement; whereas, most clubs only include it in the provision for resale of resigned memberships in the Membership Plan. Any club that considers membership document amendments that impact membership deposit refunds should carefully review the refund, membership resale and amendment provisions in both the club governing documents and members’ individual agreements with legal counsel.