17th Feb 2015
The role of the hotel or resort development consultant is often a hidden one, when they do their job properly. Often the lack of their input or a failure to take their advice shows up years after the resort or hotel complex opens to the public, when hotel owner-operator disputes come to the fore.
While it isn’t surprising when the owners of a hotel find fault with the operators they’ve put in place and seek to make changes, when these hotel owner-operator disputes happen to high-profile luxury resorts it makes the news, because these disputes are usually very private and hidden behind a shield of arbitration agreements. Increasingly, however, these disputes are becoming very public and very embarrassing for all involved.
Reasons for Publicity
Actions such as an owner locking operators out of a property with changed locks and new security teams, or current operators refusing to allow a new operator to take control of the property are becoming more and more common. These extreme standoffs are generally caused by a fundamental disagreement between the owners and operators:
- Operators of luxury brands are usually very unwilling to accede to owner requests concerning cost-cutting, and insist on keeping amenities and room rates high in order to protect the brand, even if the owner’s profitability is suffering.
- Owners often find themselves in financial straits due to lower-than-expected receipts from under-performing luxury properties, and are eager to sacrifice the brand in exchange for a more robust cash flow.
- Operators have their own reputations to consider, and resist devaluing brands because they believe they will be blamed and it will haunt them going forward.
As a result, arbitration in luxury hotel owner-operator disputes is ineffective, and public displays become a way of gaining leverage. With the economy still uncertain, these disputes will be increasingly common.