Zeidel & Associates’ Counsel Enables Hotel in Mexico to Open on Schedule with Local Manager

Situation

Zeidel & Associates represents the owner-operator of a successful brewery, beer garden, ballroom, design workshop, shops and art studio spaces in Mexico established under its beer brand name. It recently added a hotel with a restaurant, spa and social club. The development of the hotel involved the rescue and transformation of old industrial space. 

Our client intended to retain a U.S.-based company its related company used for another hotel in Mexico to serve as the operator/manager of the hotel. The hotel had already signed a letter of intent when we were hired, and the manager had presented them with an initial draft of the hotel management agreement. Although this agreement would be governed by Mexican law, our client and its Mexican legal counsel needed sophisticated U.S. counsel to negotiate the hotel management agreement in accordance with U.S. hospitality industry protocols.

Approach

The attorneys at Zeidel & Associates revised the hotel management agreement to include owner protections typical in U.S. contracts and non-negotiable points our client provided. We also revised the original draft to give our client-owner a more significant degree of involvement and control over the hotel, as the owner of the brewery brand. This is an unusual relationship for a branded hotel manager, who is accustomed to near-total control over hotel operations and branding. Also deficient in the hotel management agreement was language addressing the ongoing interaction and coordination between the brewery amenities and the hotel.

The PIP (property improvement plan) the manager provided, which included capital improvements it expected the client to make to the hotel, was also problematic. Since the hotel had just been completed to our client’s standards, it had no intention of making any changes.

The manager was not very receptive to the firm’s comments, which clearly indicated that further negotiation would be difficult and lengthy.

Result

Despite the multiple drafts of the agreement that had been drafted and an all-hands call with the manager and its counsel, our client decided to hire a local operator that would be more aligned with its vision rather than the U.S.-based operator.

Our client appreciated Zeidel & Associates’ ability to identify the risks of working with the U.S.-based manager in time for it to pivot to an alternative arrangement that would permit them to open the hotel on schedule. The hotel is currently open and operating.