A Hotel Operating and Rental Pool Agreement is an agreement between owners of a hotel property and a hotel management company, whereby the functional and management operations of the hotel are outsourced to the hotel management company. The contract enumerates various clauses laying down the rights, duties, and responsibilities of both parties. The contract also includes other clauses like the transfer of assets, conditions for termination of the agreement, legal remedies available in case of a dispute, etc. Typically, the rental pool management agreement is clubbed together with the hotel management agreement into a comprehensive contract between the parties. A rental pool management agreement involves a sharing arrangement resembling ‘timeshares,’ wherein multiple parties divide up the use of the property as well as any associated expenses, such as rent and maintenance.
Purpose of a Hotel Operating and Rental Pool Agreement
A rental pool management agreement serves the purpose of development on reduced costs. Pooling the costs together saves money. Moreover, everything from management to expenses gets divided among the parties. A hotel operating agreement shifts the risks of management from the owner to a hotel management company and ensures that functions are run smoothly.
Inclusions in a Hotel Operating and Rental Pool Agreement
A hotel operating and rental pool contract should among other things, include standard boilerplate clauses such as names of the parties, effective date, termination, dispute resolution, waiver, notices, remedies, and severability.
Key Terms of a Hotel Operating and Rental Pool Agreement
The key terms of this contract are listed below:
- Purpose- This clause specifies the purpose of the contract and establishes the validity of the parties and their rights to transfer property/ ownership etc. also laying down the intention of the owner to engage the services of the management company.
- Appointment- This clause outlines the procedure of appointment of the hotel management company for managing the affairs of the hotel. Please note that the management company is acting as the agent of the hotel owner should be mentioned.
- Owner’s Usage- The permitted usage of the property for the owner’s purposes should be outlined in the contract.
- Rental Pool- The various clauses regarding the rental/lease of property in question is laid down in this clause subject to the owner’s usage of the property and the other terms of the agreement.
Drafting of a Hotel Operating and Rental Pool Agreement
The following guidelines need to be followed to draft an effective rental pool management agreement:
- The purpose of renting out should be mentioned in the contract.
- The responsibilities and obligations of the renter need to be outlined in the contract.
- The rental rates, any revision thereof in compliance with any applicable law should be mentioned.
- The permitted purposes for the owner’s usage should be included.
- would the maintenance and other such operational expenses be divided should be mentioned
[Also Read: Rental Agreement]
Advantages of a Hotel Operating and Rental Pool Agreement
The benefits of a rental pool management agreement are:
Firstly, the management costs are 1-4% less than what they are in the management of a single unit. Regular management fees can start at 10 percent of the collected rent. Also, it facilitates accounting: all units of the rental pool are in the same building, there are shared sets of accounting records which make it easier to manage and reference, and the savings are passed on to condominium owner.
Secondly, when the units are not being used by the owners, the owner can place it for the rental pool and get a portion of the proceeds. Better yet, they get access to the same amenities and services as hotel guests.
Thirdly, benefits include shared administration charges, shared banking fees, and the advertising of your property for rent to possible tenants. Similarly, other tasks and expenses associated with the property are shared, reducing the burden on one person and increasing one’s support network.
Cons of a Hotel Operating and Rental Pool Agreement
Cons of such a contract are:
- Often excessive start-up and operating costs
- Unless the developer-owner agreement prohibits it, there could be reduced revenue to the developer if all owners decide to use their units only during the peak season
- Conflicting development objectives; there can be reduced control over future expansion because of the desire of the current individual owners to prohibit it for aesthetic reasons, or from a fear that their income might be diluted as more hotel units are added
- Complex accounting issues
Such a contract enables the hotel owners to offset their risks and allows costs to be distributed among a group of renters. In the event of any dispute, litigation or arbitration may be resorted to.
Sample for Hotel Operating and Rental Pool Agreement
A sample of the agreement can be downloaded from below.
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