With the continued growth of Oman’s tourism sector serving as a centerpiece of the government’s ‘Vision 2020’ economic development plan, one can expect a significant number of new hotels to open in the Sultanate over the coming years.
This article explains what hotel management agreements are and why they are crucial to most hotel development transactions. Next month, we will cover some of the key issues that typically arise in the negotiation of management agreements.
What is a management agreement?
Many hotels, particularly the large-scale, luxury hotels on which the Omani tourism sector is focused, are managed by one of the major international hotel operating companies. These operating companies are the household names whose signage adorns hotels across the globe, such as Ritz-Carlton, Hyatt, Intercontinental or Mandarin Oriental. A number of the international operating companies own some of the hotels they manage. However, many of the operating companies are engaged principally in the business of managing hotels owned by other investors, in exchange for fees.
The management agreement is the primary written contract between the hotel owner and the operating company, setting out the parties’ respective rights and responsibilities, typically in exhaustive detail. There are often other ancillary agreements between the hotel owner and the operating company as well, covering such matters as the use of the operating company’s intellectual property or the payment of the hotel owner’s share of expenses related to activities – e.g., staff training, reservations or marketing – that the operating company conducts jointly for all of the hotels under its management on a regional or worldwide basis.
Why are management agreements so important?
Hotel management agreements are crucial for two main reasons. First and most obviously, large luxury hotels are big business – there is a great deal of money, jobs and prestige on the line for both the hotel owner and the operating company, so management agreements must be negotiated thoughtfully and drafted carefully, commensurate with their high-quantum, high-stakes nature.
Second, hotel management agreements are important because they are the framework that govern a very long-term business relationship. Most hotel management agreements run for a term of at least 10 years and often 15 to 20 years, typically with the option for the parties to extend for an additional 5 or 10 years by renewal. The hotel management relationship often lives on long after the individuals who entered into the relationship – on both the owner and operator sides – have left their respective organizations. Thus, a well-drafted management agreement can play an important part in maintaining a long, mutually prosperous and harmonious relationship between the hotel owner and the hotel operating company.
Thursday, August 4, 2011
An Introduction to Hotel Management Agreements
Tuesday, January 4, 2011
Legal Developments in Oman - January 3, 2011
Iran Sanctions and Iran-Oman Trade – Part I Oman is a close neighbor and a significant trading partner of the Islamic Republic of Iran, which is located just across the Strait of Hormuz from the Sultanate. Iran accounts for approximately 4% of Oman’s exports. As reported in the Omani press, Oman and Iran recently held the 13th round of the Omani-Iranian Joint Committee to discuss ways to strengthen their trade relationship in areas such as investment, transportation, banking, tourism, mining, oil and gas, petrochemicals, shipping and telecommunications. However, numerous aspects of Omani-Iranian trade are likely to come under stress as a result of the sanctions that have been imposed against Iran in recent months by the international community. Nuclear Program Prompts Sanctions In response to Iran’s nuclear development program, which many suspect of pursuing nuclear weapons, the United Nations (“U.N.”) Security Council, the United States of America, and the European Union have all imposed sanctions relating to trade with Iran. All of these sanctions have the potential to affect Omani companies that do business, directly or indirectly, with Iran. This month we discuss the U.N. Security Council resolution against Iran, Resolution 1929. In next month’s Client Alert, Part II of this article will discuss the sanctions that the United States and the European Union have imposed against Iran. U.N. Security Council Resolution 1929 In recent years, the United States, many European nations, and other countries have grown increasingly alarmed at the prospect of Iran developing nuclear weapons, and have urged the larger international community to take measures to rein in Iran’s nuclear program. On June 9, 2010, the U.N. Security Council passed Resolution 1929, holding Iran in violation of its non-proliferation obligations under international law and instituting a fourth round of sanctions. Resolution 1929 was passed by the Security Council with twelve votes in favor, one abstaining, and two against. Under Chapter VII of the U.N. Charter, Security Council resolutions finding a threat to the peace, such as Resolution 1929, are binding upon member states and require implementation of their provisions via national law. Accordingly, all U.N. member states, including Oman, are obligated to implement and enforce Resolution 1929. Resolution 1929 institutes a number of measures targeting Iranian military and nuclear capabilities, as well as entities that provide financial or transportation services related to Iran’s military or nuclear activities. Among other measures, the resolution seeks to ban the sale of weapons and military equipment to Iran. Furthermore, all U.N. member states are prohibited from allowing Iranian investment in uranium mines, enrichment facilities and other nuclear technology. Finally, Resolution 1929 calls on U.N. member states to ban travel by, and freeze the assets of, specifically named Iranian officials and entities tied to the Iranian government, in particular those connected to the Islamic Revolutionary Guard Corps.
Thursday, June 24, 2010
Potential Advantages of a Specialized Real Estate Regulator
Focus on Real Estate Series
Oman’s prudent approach to real estate development has been well rewarded over the few past years, as the Sultanate’s selective focus on sustainable, mainly high-end projects has enabled Oman’s real estate and tourism sectors to thrive while other countries in the region have struggled. As the Sultanate continues to develop its real estate sector, one possible future addition to consider would be a specialized regulatory authority for the real estate sector. Properly structured, a specialized regulator could further increase coordination, efficiency, and responsive oversight across the sector. Generally, a real estate authority is a specialized body that is actively involved in all aspects of the real estate sector and has close working relationships with both higher governmental officials on the one hand, and private participants in the real estate sector (e.g., developers, landlords and tenants) on the other hand. Functions that a real estate regulatory authority may perform include:- drafting regulations in accordance with the broader laws (e.g., Royal Decrees) that carry out the government’s objectives while also being attuned to issues facing market participants “on the ground”;
- certifying and licensing property developers to help maintain the integrity of the sector;
- adopting streamlined, unified processes that make the sector more user-friendly to all market participants and provide comfort to investors;
- coordinating and providing centralized access to real estate records and data; and
- helping to promote housing quality standards and carry out other governmental objectives, such as access to affordable housing.
Friday, September 11, 2009
Labor Law Alert: Omanisation
Earlier Omanisation policy aimed at reducing the reliance on foreign workers prescribes sector-wise Omanisation targets for the private-sector employers to achieve with a target of 90% for the revenue-rich sectors of oil and gas, banking and travel and tourism and 100% for marketing. The policy makes it mandatory for employers to employ Omani nationals for certain administrative posts such as receptionist and security officer. In addition, certain jobs have also been Omanised area-wise, limiting expatriate employment to certain regions.
The employers in the private sector are required to file their Omanisation plans annually with the Ministry of Manpower.
The implementation of the policy is two-pronged: (i) incentivising companies exceeding the prescribed target; and (ii) restricting foreign labour clearances for employers failing to meet the target. Private- sector companies exceeding their Omanisation targets and meeting other labour-related criteria are entitled to a ‘green card’ which guarantees preferential treatment in some Ministries and other government agencies.
Tuesday, May 26, 2009
Hot Topic: Red Tide Legal Issues
In recent weeks, the Omani coastline has been significantly affected by red tide, a biological phenomenon that occurs when the rapid growth of algae overtakes a water column.
Red tides, also known as algal blooms, are common along the coastlines of the Arabian Gulf between the months of March and September. Red tides are generally considered to be a natural phenomenon, though many scientists contend that human activity such as pollution or global warming can increase their likelihood or exacerbate their severity.
The red tides result in red or green colored seawater, unpleasant odors, and low underwater visibility, making the water an unpleasant place for beach goers. Severe red tides, however, are more than just a nuisance. The proliferation of algae blocks out sunlight and results in a lack of dissolved oxygen in the water, causing the death of marine organisms and the destruction of ecosystems.
As has been seen in Oman, the environmental disruption caused by red tides can have a serious impact on businesses relying on the waters for economic activities.
Perhaps the most direct consequence felt by businesses has been the killing of massive amounts of fish. In 2001 and 2002, 27 tons of dead marine life came ashore along Sur, Batinah and the south of Oman. The recent red tides have also resulted in large amounts of dead fish washing ashore in Muscat. Such destruction has a detrimental impact on fisherman and fisheries in Oman.
Additionally, the red tides significantly affect tourism. The red tides are toxic and cause skin irritation rendering the water un-swimmable. Resorts in the area routinely warn their guests to stay out of the water during red tides. Further, the blooms have resulted in the destruction of coral reefs and the killing of whales and dolphins.
Algal blooms also have a serious impact on industries relying on the use of sea water, and are known to have caused temporary industrial shutdown. In Oman, the red tide has caused a temporary halt at the Qalhat LNG plant as well as the Sohar Aluminum plant. Similarly, other Omani plants in Sohar must remove foam from the sea water before it comes into contact with their systems and equipment. Removing the foam, which is caused by algal blooms, increases costs materially.
Red tides also raise complex legal issues, most of which hinge on the question of causation. Of particular concern to businesses is whether legal rights exist for those parties facing adverse economic effects. The answer to this question relies on whether red tides are caused by the activities of any particular person or legal entity. If so, it must be determined whether such entity has breached a duty to refrain from such activity or applicable environmental laws.
While red tides are widely considered to be natural phenomenon, many scientists believe the frequency and severity of red tides are influenced by human activities, including pollution and the dumping of raw sewage, that raise nutrient levels in the waters. If direct causation, for example by the unlawful dumping of raw sewage, can be determined, liability for damage caused by red tides could possibly be found against the violator.
Assuming the red tide is caused by pollution, Oman has environmental laws in place that would hold the polluter liable. Specifically, the Environmental Law, provided in Royal Decree 114 of 2001, provides criminal penalties for introducing harmful pollutants into the natural environment of Oman. If the pollution involves the discharge of a pollutant into wadis, sewage systems, catchments feeding the underground water or rain water disposal networks, or falajs and their channels, the penalties are more severe.
In addition to fines and imprisonment, polluters are also required, at their own expense, to repair the damage to the environment by restoring it to the previous state. If the red tide in Oman is caused by a polluter, the clean up and compensatory costs could be enormous.
Currently, however, it is not clear what causes the red tide and there is no hard evidence that it is caused by polluters in Oman. Therefore, perhaps more important than liability is the matter of mitigation and prevention. In Oman, this responsibility is imposed on the Ministry of Environment and Climate Affairs (MECA). MECA has set up a warning system involving the placement of buoys outfitted with sensors for continuous measuring of over 13 determinants of water quality.
