7 June, 2019
Mixed use developments are becoming more and more prevalent today which reflects a shift in the market to have built environments which cater for multiple uses. In the hotel context, it is becoming a popular alternative to the traditional single use accommodation model.
Operating a hotel in a building with multiple components, each with a different use, requires detailed thought and consideration as to the appropriate structure and the interactions between each different component. It is necessary to factor these considerations into the planning and negotiation process to ensure that each parties' interests, rights and requirements are properly addressed and protected. We seek below to identify the issues which should be considered during the initial stages of planning a hotel which sits within a mixed use development.
In the considerations which follow there are no absolute answers. Different approaches will be taken by owners and operators with respect to individual issues and it is important that advisers possess a thorough understanding of the issues that may arise and the solutions that may be proposed to their clients in order to ensure that the hotel operates seamlessly in a mixed use environment.
To ensure that this newsletter is not overly wordy we have assumed a certain minimal understanding by the reader of the issues covered. We have not considered in this article the strata title laws and issues which should also be addressed when planning a mixed use development or other legal intricacies which may arise in particular jurisdictions.
Construction issues
- What is the construction timeline for the hotel compared to the other components of the development?
- Will the hotel open before construction of the remainder of the development is complete? If so, what restrictions will the operator seek to put in place and how will this affect the construction of the remaining development? How will ongoing construction affect the operation of the hotel?
- What input will the operator require over the construction of the common areas or facilities of the development?
Brand Standards — where the hotel's "front of house" is shared with other components of the development
- How will the hotel's brand standards impact on the common areas or facilities of the development, e.g. a shared lobby entrance?
- How will the cost of maintaining those common areas or facilities to the relevant brand standards be apportioned between the owners of the different components?
Brand Standards — on other components of the building particularly retail
- Is there an alignment between the brand standards of the hotel and the standards required of the other components, e.g. a luxury retail brand?
- What are the operator's rights in relation to requiring the common areas or the exterior of the building to comply with brand standards?
Property insurance
- What are the owner's obligations in relation to insurance for the hotel vs the building? Can these obligations be complied with for the duration of the hotel management agreement?
- Can an owner comply with an absolute obligation to take out and maintain the insurances required by an operator?
Damage/condemnation of all or part of the building and the consequences of such events
- What happens if the building is damaged but such damage does not affect the hotel? Is the hotel required to continue to operate?
- Is the owner obliged to repair the hotel if the hotel is partially damaged?
- When will the parties' right to terminate the hotel management agreement arise in the context of damage or destruction to the building?
Hotel and unbranded residences
- What rights does an operator have over the look and feel of the residences?
- What restrictions will an operator seek to implement on owners of the unbranded residences and how will these restrictions be enforced?
- Can the developer refer to the brand name of the hotel when carrying out sales and marketing activities for the unbranded residences?
- To what extent do the residences need to comply with any brand standards if they are not branded?
Hotel and branded residences
- Who will receive the licensing rights to use the brand?
- How will the brand standards for the residential component be enforced?
- What rights will the operator have and be required to have to enforce any misuse of the brand or non-compliance to the brand standards?
Sharing of common facilities (e.g. swimming pool, gym) between the hotel and non-hotel components of the building
- Where are the common facilities located? Do they form part of the hotel envelope or sit within the other components of the development?
- What mechanism will be in place to allow sharing of the common facilities, e.g. licence arrangement?
- What rights will the operator have over the use of the common facilities?
- How will the cost of maintaining the common facilities be apportioned between the relevant parties?
- Will the operator have control over the use and maintenance of the common facilities?
- Do brand standards apply?
Sharing of common services (e.g. utilities, lifts, loading docks) between the hotel and non-hotel components of the building
- What rights will the operator have over the use of the common services?
- How will the cost for maintaining the common services be apportioned between the relevant parties?
- Will the operator have control over the use and maintenance of the common services?
- Do brand standards apply?
Signage
- Where will the hotel signage be erected? Within the hotel envelope or in common areas or other areas which the operator does not have control over?
- Does the hotel owner have the relevant rights in relation to those areas where the hotel signage will be erected?
- Will the operator require approval rights in respect of other signage erected on the exterior of the building?
For further information, please contact:
Graeme Dickson, Partner, Baker & McKenzie
graeme.dickson@bakermckenzie.com
