Operators &
Contracts
A hotel’s return sits in the contract, not in the façade. Sarego Group finds operators for hotels in Austria, Switzerland, Germany, the Alps, the Adriatic and the Mediterranean and negotiates the contracts that follow. Owners without an operator and operators without a property meet here.
What this is about: Service 04
The contract with the operator is the product an owner sells.
Three forms are customary. The lease: the operator pays a fixed, sometimes turnover-linked sum and carries the operating risk. The management agreement: the operator runs the property for the owner against a fee, and the result stays with the owner. The franchise: an owner-run business uses a brand and its distribution system for a fee. Each form shifts risk, yield and influence to a different place, and which of them fits follows from the financing.
Two figures decide whether a contract holds. Lease cover says how many times the operating result earns the lease; where it sits just above one, the first weak season is a problem. The FF&E reserve is the amount the business sets aside each year for furniture, fittings and equipment. Forget it in the contract and you find the property worn out after ten years. Both figures belong in the contract and not in an annex nobody reads.
How we proceed: 01 bis 04
Profile of the property
Location, size, condition, guest mix. From that follows which operators and brands fit at all. Only then do we approach anyone.
Approach
We approach operators and brand companies directly, in confidence and with sound documents.
Negotiation
Lease level, term, options, securities, maintenance obligations, FF&E reserve, exit clauses.
Handover and control
Inventory, transfer of staff, reporting duties. A contract is only as good as the reporting behind it. A fixed format is agreed, not a promise on request.
For whom: Client groups
Owners with an expiring or terminated lease, developers before construction starts and operators wanting to take on another property. The most urgent calls come from owners whose lessee no longer pays.
- Properties moving from own operation into a lease.
- Projects needing a committed operator before financing.
- Existing contracts being renegotiated to market level.
Questions: Three questions
- Lease or management: which is safer?
- The lease is more predictable as long as the lessee stays solvent. The management agreement gives the owner the full result, in the good year and the bad one. Safety comes less from the form of contract than from securities, reporting duties and a lease level the business genuinely carries. What counts is how well the lessee earns the lease in a weak year too.
- What is an FF&E reserve?
- FF&E stands for furniture, fixtures and equipment, that is, a hotel's movable fit-out. The reserve is a share of turnover set aside each year from which beds, floors, plant and furniture are renewed. If it is missing from the contract, the owner pays in the end.
- Do I need a brand?
- Not necessarily. A brand brings distribution, standards and goodwill with lenders, but costs fees and design freedom. For properties with their own history and strong repeat guests the unbranded variant is often the better one. That is calculated through before anyone signs.
