Zeidel & Associates Negotiates Hotel Management Agreement for Major Ski Resort Company

Situation

Zeidel & Associates represented a major ski resort company with properties across the United States in connection with its acquisition of a hotel located in a well-known resort town in the western U.S. The hotel, which included food and beverage outlets, was situated adjacent to and part of the client’s larger resort development.

As part of the sale, the existing hotel manager – an affiliate of the seller – was to continue managing the hotel after closing. However, the client had serious concerns about the manager’s accounting practices, including potential co-mingling of funds between this property and other properties. The client was also concerned about inheriting pre-closing liabilities if it were forced to assume the seller’s existing hotel management agreement.

The client retained Zeidel & Associates to negotiate a new, post-closing hotel management agreement that would only become effective once the client acquired the hotel. The client prioritized strong budget approval rights, protections from past liabilities, and flexibility to integrate the hotel into its broader resort operations, including selling rooms through its own channels and marketing ancillary products such as gear rentals.

Another key consideration was the client’s long-term plan to demolish the existing hotel and develop a new, upscale property elsewhere within the resort, that the client did not feel the existing manager’s brand would be suitable for.  The manager was unwilling to sign a short term management agreement to manage the existing hotel and pushed to secure guaranteed management rights over the future hotel.

Approach

Zeidel & Associates resisted the seller’s push to require assumption of the existing management agreement and instead negotiated a new agreement tailored to protect the client. We ensured that the client would not inherit any pre-closing liabilities and secured robust budget approval rights.

Because the seller refused to provide certain standard representations and warranties in the purchase and sale agreement, we strategically incorporated as many of those protections as possible into the hotel management agreement and further strengthened the client’s position by requiring a manager estoppel.

With respect to the client’s redevelopment plans, we successfully pushed back against the manager’s insistence on guaranteed management rights over the future hotel. Instead, we negotiated a creative compromise: the manager received only a conditional right of first offer to manage the new hotel. This ROFO was subject to numerous conditions, including market-based terms, the manager’s good standing, and approval from the client’s financing partners.

Result

Zeidel & Associates delivered a management agreement that safeguarded the client from pre-closing liabilities, gave it control over the hotel’s budget and operations, and preserved the client’s flexibility to redevelop its resort on its own terms.

The carefully structured ROFO ensured the manager could not automatically assume control of the future upscale hotel while giving the client the ability to terminate the existing management agreement in connection with redevelopment. This innovative solution provided the client with certainty, control, and the freedom to pursue its long-term vision without undue restrictions or liability.