Ownership & finance
Management agreement
Also written: HMA, hotel management agreement
What Management agreement means
A hotel management agreement is a legally binding contract between a property owner and an operator, delegating day-to-day operations to the brand or management company. Distinct from corporate leasing, the property owner retains financial risk and asset ownership while paying operational and incentive fees.
How it is used
Owners and investors use HMAs to secure professional operating expertise and brand equity without selling the underlying real estate. Revenue managers and general managers operate within the budget, performance benchmarks, and brand standards mandated by the contract. Key negotiation points include the base fee (typically 2–4% of gross revenue), incentive fees based on Gross Operating Profit (GOP), owner's approval rights over budgets, and performance termination clauses (such as RevPAR yield index thresholds). Operators use HMAs to expand their brand footprint without committing capital to asset ownership.
Worked example
An investor owning a 200-room hotel signs an HMA with a major operator charging a 3% base fee on total revenue and a 10% incentive fee on GOP above a $2,000,000 hurdle. If the hotel generates $10,000,000 in total revenue and $2,800,000 in GOP, the owner pays $300,000 in base fees and $80,000 in incentive fees (10% of $800,000 excess), yielding $380,000 in total operator compensation.
Common mistake
Owners often overlook performance cure rights, allowing operators to pay out-of-pocket shortfalls to prevent contract termination despite underperforming the agreed-upon competitive set.
Related terms
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