Many hotel owners do not run their hotels themselves. They appoint a hotel operator, either a branded chain or a local management company. The trouble rarely appears on the day the agreement is signed. It appears when the owner wants to know where this month's room revenue is, or when the owner wants to terminate and finds that the hotel's OTA listings, website domain, licences and staff are all in the operator's name. The hotel still belongs to the owner, but it cannot go on selling rooms.
This guide is written for owners who are about to appoint an operator, or already have one. It focuses on the relationship between owner and operator during the term and at termination. If you are still at the stage of buying or taking over a hotel, see our guide to buying or taking over an operating hotel, which focuses on pre-acquisition checks.
The short answer
Before signing a hotel management agreement (HMA), the owner should have written answers on five points. First, who owns the building, who holds the licence, who is the hotel manager, and what role the operator has. Second, whose name every collection account is in, how much each person can withdraw, and how the owner can verify the figures. Third, who is the employer, who bears which costs, and who approves contracts with suppliers. Fourth, whether fees are based on revenue or profit, and how those figures are defined. Fifth, on termination, what must be handed back, in what form, and within how many days.
The legal framework. Most of the relationship is set by contract, but the law fixes some points. A hotel business licence is issued to the operator of the business, not to the building. The hotel legislation sets duties for the hotel manager, such as keeping the guest register. Whoever is the employer bears the obligations under labour protection and social security law. The Personal Data Protection Act B.E. 2562 (2019) separates the duties of the data controller (Section 37) from those of a data processor acting on instructions (Section 40). A good agreement therefore makes the roles on paper match what actually happens.
1. How do the building owner, the licence holder, the hotel manager and the operator differ?
These four roles may be one person or four. The confusion starts when owners believe they hold every role, but the actual documents are in the operator's name.
| Role | Who it usually is | Why it matters |
|---|---|---|
| Owner of the land and building | The owner's company, or a long-term land lessee | Makes the investment and bears the risk of the asset |
| Holder of the hotel business licence | The person who operates the business in their own name | The licence does not go with the building. If it is in the operator's name, it must be transferred or applied for again on termination |
| Hotel manager under the hotel legislation | The person responsible for running the hotel, often a general manager sent by the operator | Has statutory duties such as the guest register and notifying the stay of foreign nationals. If this person leaves, someone must take over immediately |
| Hotel operator (management company) | A contractor that brings systems, people and sometimes a brand | Earns the management fee and should have only the authority the agreement gives it |
Three structures are common, and you need to know which one your hotel falls under.
- Management arrangement. The owner takes the revenue and bears any loss, and the operator earns a management fee. The licence, the bank accounts and the supplier contracts should be in the owner's name.
- Lease. The operator leases the building and runs the business on its own account. The revenue is the tenant's and the owner receives rent. The licence and the staff therefore usually sit on the tenant's side, and the main issues become lease issues.
- Franchise. The owner runs the hotel, or appoints another operator, but uses the chain's brand and booking system. There are two sets of contracts that must be read together.
The warning sign is a document that says "management arrangement" while the licence, the collection accounts and the employment contracts are all in the operator's name. In practice the owner carries the risk of an investor but holds only a contractual claim. If the operator runs into financial trouble, the hotel's money may be mixed with the operator's assets.
2. Whose account does room revenue go into, who can withdraw, and how does the owner verify revenue?
In a management arrangement, the safe principle is that every baht of hotel revenue goes into an account in the name of the owner's company. The operator has authority to make payments as delegated, but does not own the account.
Trace every channel through which money comes in, and state in the agreement which account each one goes to.
- Cash and transfers at the front desk
- Card terminals (EDC): whose name the merchant account tied to the terminal is in
- Payments from OTAs, for example where the OTA collects from the guest and remits, or pays by virtual card
- The payment gateway on the hotel website
- POS for restaurant, bar and spa, and deposits for banquets or seminars
- Service charge collected from guests for distribution to staff, which should be recorded separately with proof of payment
Authority to withdraw should be set in tiers. For example, regular expenses within an approved budget can be paid on the operator's instruction; expenses above a limit or outside the budget need co-signature by an owner's representative; and the operator may not borrow, give guarantees or pledge hotel assets in the owner's name unless approved in writing. The management fee should be paid on an invoice with the calculation attached, not deducted by the operator from the account itself.
Reporting and verification that should be written in:
- Daily reports, for example rooms sold, occupancy, average daily rate and bank deposits
- A monthly profit and loss statement within a set number of days, compared with the budget
- Read-only access for the owner to the PMS, the POS and the bank accounts, with the bank sending statements directly to the owner
- Reports on complimentary rooms, discounts, voided items and adjustments after day close, which are frequent points of revenue leakage
- The right of the owner's accountant or auditor to inspect the books and documents, who bears the cost if discrepancies above an agreed level are found, and how long the operator must keep records, including after termination
Tax and accounting. If the owner's company is a business operator with tax obligations, the agreement must say who keeps the books, who files value added tax and withholding tax returns, and who is liable if a filing is late because the operator's documents were incomplete. For how to set up the company's accounting, see our guide to first-year company accounting.
3. Who employs the hotel staff, and who bears which costs?
There are two main employer models.
- The owner is the employer. Staff sign contracts with the owner's company. The operator selects and supervises them on the owner's behalf. The general manager and some department heads may be the operator's own employees seconded to the hotel, with their cost recharged.
- The operator is the employer. Staff sign contracts with the management company, which recharges wages and benefits to the owner.
The employer bears the obligations under labour protection law, social security and severance pay on dismissal. Where the operator is the employer but staff work in the owner's business, Section 11/1 of the Labour Protection Act B.E. 2541 (1998) must also be considered. It sets duties on the business operator towards workers supplied by a labour contractor, so that they receive fair benefits and welfare without discrimination. Whether it applies depends on the facts. See our guide to workers supplied by labour contractors for more.
When the agreement ends, staff do not automatically become employees of the owner or of a new operator. A change of employer needs the employee's consent. The agreement should therefore answer in advance:
- Who bears severance pay and accrued leave for past service
- If staff consent to move, whether their length of service continues
- To whom, and by when, the operator must deliver staff files, payroll history and social security records
For moving staff between companies, see our article on transferring employees to an affiliated company.
Divide costs clearly. Hotel operating costs, such as hotel payroll, utilities, supplies and repairs, generally belong to the owner. The operator's head-office costs should already be covered by the management fee. The points that must be written clearly are:
- How the chain's shared services are charged, such as the reservation system, membership programme, joint marketing, training and regional team travel, and whether there is a cap
- Whether discounts or rebates from the chain's group purchasing must be disclosed and passed on to the hotel
- That contracts between the operator and its own affiliates need the owner's prior approval
Budget approval and supplier contracts
- The annual operating budget and the capital budget must be approved by the owner, and the agreement should say which budget applies in the meantime if they cannot agree
- Supplier contracts above a set value, or running beyond the term of the management agreement, need approval
- Supplier contracts should be made in the owner's name, or contain a clause allowing transfer or termination when the management agreement ends. For how to write service levels, see our guide to monthly service contracts, MSA and SLA
4. Whose name are the hotel licence and other licences in, and who renews them?
Keep a licence register showing the holder, expiry date, who is responsible for renewal and where the original is kept. At a minimum it should cover:
- The hotel business licence and the list of hotel managers notified
- The liquor licence, and the licence or notification certificate for food premises
- The health establishment licence, if there is a spa
- Licences for the building, signage, fire safety systems and the environment, as the particular hotel requires
If the licence is in the operator's name, the owner must apply for a transfer or a new licence when the agreement ends, and during that time it may be unable to sell rooms or alcohol. The agreement should require the operator to help file the transfer, sign the necessary documents and keep operating through the handover period until the transfer is complete. For more on hotel licensing, see our article on hotel and accommodation licences.
Daily legal duties, such as the guest register and notifying the stay of foreign nationals, are performed by the operator's staff, but the legal consequences fall on the licence holder and the hotel manager. The agreement should require the operator to report on legal compliance, tell the owner immediately when any official letter arrives, and be liable when the failure was the operator's.
Insurance. State separately who takes out property insurance, third-party liability insurance and insurance relating to staff, who is a co-insured, and who is liable when a guest is injured through staff negligence. See our guide to guest injury in hotels on this point.
5. Is the fee based on revenue or profit, and how should the figures be defined?
Most management agreements have two parts to the management fee.
- Base fee. A proportion of gross revenue, paid to the operator even if the hotel makes a loss.
- Incentive fee. Based on operating profit (GOP), or on the profit left after the owner first receives a minimum return. It rewards the operator for controlling costs, not just for raising sales.
The rates are a matter of negotiation, but most disputes come from the definitions, not the rates. At a minimum, check the following.
What gross revenue includes or excludes
- Value added tax, and service charge that is distributed to staff
- Deposits for services not yet provided
- OTA revenue: counted before or after the commission is deducted
- Insurance proceeds and proceeds from the sale of hotel assets
- Income from tenants of space in the hotel, such as a shop or spa let to another party
What is deducted in arriving at operating profit
- Payroll, utilities, marketing, repairs and IT systems
- The chain's shared service charges, brand fees and membership programme fees: deducted before or after profit is calculated
- Items that belong "below the line", that is, items that neither reduce nor increase the profit on which the incentive fee is calculated, such as the management fee itself, property insurance premiums, property or land tax, the FF&E reserve, land rent, depreciation and interest
Many agreements refer to the hotel industry's uniform system of accounts (USALI). The agreement should name the edition used and list in an annex any items agreed differently from the standard.
Other fees that tend to hide. They should be gathered in one schedule so that the owner sees the full cost, for example brand fees, marketing contributions, central reservation fees, membership programme fees, technical services fees during construction or renovation, and pre-opening fees.
The FF&E reserve (the reserve for replacing furniture, fixtures and equipment) should be held in a separate account in the owner's name. The agreement should say who approves its use and that any balance on termination belongs to the owner.
Performance test. If the owner wants a right to terminate for poor performance, the test must be written so that it can be applied: for example, measured against the budget and against a named competitive set of hotels, over how many consecutive years, whether force majeure is excluded, and whether the operator may pay the shortfall to cure instead of being terminated.
6. Who owns the OTA accounts, website and booking systems?
On termination, the greatest damage to an owner is often not the building but the sales channels. State from day one that:
- The hotel's OTA listings, for example on Booking.com, Agoda, Expedia and Trip.com, are tied to the owner's company. The owner holds the primary administrator rights and payouts go to the owner's account. These listings carry accumulated reviews and ranking, and starting again if they are lost is costly.
- The website domain, domain email, social media pages and Google Business Profile are registered in the owner's name, with the operator given secondary administrator rights.
- The PMS, the channel manager and the POS. If these are the chain's systems, agree the export formats available on termination, such as booking history, advance bookings and accounts receivable.
- The hotel's telephone number and LINE account are in the owner's name.
If the hotel uses the chain's brand, the brand name, logo, standards and membership programme belong to the operator or the brand owner. On termination the owner must de-brand within a set time. What can be negotiated is hotel-level data, such as advance bookings that came through the chain's systems, and the agreement should say how they will be passed on or honoured.
7. Who is the data controller for guest data under the PDPA?
As a general rule, under a management arrangement the hotel business that collects guest data in order to provide accommodation is usually the data controller, and the operator that processes data on its instructions is the data processor. Section 40 sets the duties of a processor, for example to act on the controller's instructions, to maintain security measures, to notify the controller of a breach, and to keep records of processing activities.
But if the operator uses the data for its own purposes, for example the chain's membership programme or marketing for other hotels in the chain, the operator may also be a data controller for that purpose. It must be clear which data is used for what, and who informs the guest.
A data processing agreement should include at least:
- The purposes and categories of data, for example booking data, passport copies, card data and CCTV images
- Sub-processors, for example the PMS provider, cloud systems and OTAs
- Security measures and retention periods
- The period within which the operator must notify the owner of a breach, short enough for the controller to notify the regulator in time under Section 37
- Return or deletion of data on termination, with written confirmation
For common weak points in hotels, see our article on guest registration and the PDPA, and for the steps after a leak, our guide to responding to a data breach.
8. What must be handed back on termination, and within how many days?
Grounds for termination that should be written in include expiry of the term, performance below the test, a serious breach not cured within the stated period, the operator's insolvency or cessation of business, and sale of the hotel, together with any early termination fee and the handover period during which the operator must keep managing.
A handover schedule that should be annexed to the agreement:
| Item | What must be received | Deadline |
|---|---|---|
| Authority over bank accounts | The operator's rights, tokens and cards cancelled | Termination date |
| OTA accounts, domain, email, social media | Primary administrator rights transferred, passwords changed, the operator's verification emails removed | Termination date |
| Advance bookings and deposits | A list of bookings with stays after the termination date, and transfer of deposits held | Termination date |
| Data in the PMS and POS | Export files in the agreed format | As set in the agreement |
| Guest data | Return or deletion, with written confirmation | As set in the data processing agreement |
| Staff files and social security records | Delivered to the party that will be the employer, only for staff who consent to move | Before the transfer date |
| Licences | Transfer documents signed, or management continued until the new licence is issued | According to the authorities' timetable |
| Supplier contracts | A list of contracts, transferred or terminated | Within the handover period |
| Accounts and documents | Closing accounts, reconciliation of the management fee and original documents | As set in the agreement |
| Keys, codes and assets | An inventory of assets and stock, and the passwords for all systems | Termination date |
Withholding the final management fee until the handover is complete works well if it is written into the agreement from the start. Notice of termination and the calculation of damages must follow the procedure in the agreement and should be checked before any notice is sent, because a notice served incorrectly could make the owner the party in breach.
9. What should be checked before signing a hotel management agreement?
Roles and documents
- State the structure clearly: management arrangement, lease or franchise
- Whose name the hotel licence and other licences are in, and who renews them
- Who the statutory hotel manager is, and who takes over the duties when the post is vacant
Money
- Every collection channel pays into accounts in the owner's name
- Withdrawal limits, and items needing co-signature
- Daily and monthly reports, read-only access to systems, and audit rights
- No borrowing, guarantees or self-deduction of the management fee
Staff and costs
- Who is the employer, and who bears severance pay on termination
- A list of hotel expenses versus the operator's head-office expenses
- Shared service charges, group purchasing rebates and contracts with affiliates
- Approval of the budget, capital budget and supplier contracts
Management fee
- Definitions of gross revenue and operating profit, with the below-the-line items
- A schedule of all fees
- The FF&E reserve held in the owner's account
- A performance test that can actually be applied
Sales channels and data
- OTA accounts, domain, social media and telephone numbers in the owner's name
- Export formats from the PMS and POS
- A data processing agreement and a breach notification period
Termination
- Grounds for termination, termination fee and handover period
- A handover schedule annexed to the agreement
- Transfer of advance bookings and deposits
Further reading
- Buying or taking over an operating hotel or resort — pre-acquisition checks, licences, extensions and existing staff
- Guest injured or property lost in a hotel: who is liable? — liability and insurance
- Monthly service contracts, MSA and SLA — writing measurable service levels
- Workers supplied by labour contractors — when staff are not employees of the business owner
- Responding to a data breach: the first hours — when guest data leaks
- What licences do you need to open a hotel or accommodation? — who must apply for a licence
- Guest registration and the PDPA — passport copies and common weak points
- Services: Business licenses · Drafting and reviewing contracts · PDPA for businesses
A good hotel management agreement leaves the owner holding the money, the licences, the sales channels and the data throughout the term, and lets the owner change operators without the hotel ceasing to sell rooms.
We help review and negotiate hotel management agreements and franchise agreements, data processing agreements, and handover plans for a change of operator. For an initial consultation, call +66 92 254 2045 or send us the details. See also our legal retainer service.
This guide is published by Suwanvara Law Firm — a Khon Kaen law firm established in 1986. General information only, not legal advice on a specific matter.
