Subordination of Hotel Management Agreement

30 August 2023

Subordination of Hotel Management Agreement: An Overview

As a professional, I understand the importance of keywords and the impact they can have on search engine rankings. One term that may come up when researching the hospitality industry is the subordination of hotel management agreement (HMA). This article will provide an overview of what this term means, its significance, and how it affects hotel owners and management companies.

What is a Subordination Agreement?

A subordination agreement is a legal document that establishes the priority of one party`s claim over another party`s interest in a property. In the context of HMAs, it refers to the priority of the lender`s claim over the management company`s rights to the hotel. This means that if the hotel owner defaults on their loan, the lender has the right to take control of the property, regardless of any existing management agreements.

Why is Subordination Important for Hotel Owners?

For hotel owners, subordination is important because it can affect their ability to secure financing. Lenders want to ensure that their interests are protected, and a subordination agreement allows them to do so. Without it, the management company could potentially claim ownership of the hotel and prevent the lender from taking control in the event of default.

Moreover, subordination can also benefit hotel owners in terms of negotiating favorable terms with management companies. A subordinated HMA gives the owner more leverage in negotiations, as they have greater control over the property.

How does Subordination Affect Management Companies?

From the perspective of management companies, subordination can be a disadvantage as it limits their control over the hotel. If the owner defaults on their loan, the lender can take over the property and potentially terminate the existing management agreement.

However, some management companies may be willing to accept subordination in exchange for other benefits, such as increased fees or a longer-term agreement. It ultimately depends on the bargaining power of each party in the negotiation process.

In conclusion, understanding the subordination of hotel management agreements is an important aspect of the hospitality industry. For hotel owners, securing a subordinated HMA can improve their chances of securing financing and negotiating favorable terms with management companies. For management companies, subordination can limit their control over the property, but they may be willing to accept it in exchange for other benefits. By keeping this information in mind, hotel owners and management companies can enter into agreements that are mutually beneficial and protect their interests.