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MIHM304 Reflection on Hotel Management Agreement Negotiation and Contract Assessment 2 Answer

MIHM304 Hospitality Property Management and Development Strategies

Assessment 2 Outline

Assessment title: Hotel Management Agreement NegotiationAssessment weighting: 30%
Assessment type: NegotiationsWord limit: 2000 Equivalent
Assessment instruction
You will be assigned a role as an (1) Owner or (2) Operator. Negotiate a Letter of Intent for a Hotel Management Agreement addressing the priorities as outlined in your respective brief. The Operator will be expected to make the first offer.
Students are not to reveal the confidential brief to each other but will be required to negotiate to achieve your objectives and to find compromises to achieve an agreement. Research will be required to word and specify the key contract terms, negotiate to achieve a
financially beneficial and mutual agreement.
Assessment format
A simplified Letter of Intent template will be provided as a framework to assist you in forming the agreement. This will cover the body of the assessment.
In your conclusion, capture the 6 elements of contract formation identified.
On the final page provide a self-reflection on the negotiation process and your performance as an effective negotiator.

I have played a role of operator in this assignment. have attached you the letter of intent from owner side as well as the offer I made to the owner. Since I could not seal the deal, now you have to write a conclusion of 300 words why I could not seal the deal ( need relation to 6 elements of contract formation). After conclusion, you have to provide a negotiation on negotiation process and my performance as effective negotiator. The negotiation was done on phone call, mail and on Microsoft team online platform as face to face meeting was not possible because of covid 19.

Dear Mr James Canavan

The Regency Group

137 Days Road, Regency Park

 RE: Allwood Hotel Group Letter of Intent

Proposed Allwood Styles Rothbury (The Regency International Hotel)

1. Dear Mr Canavan,

On behalf of Allwood Hotel Group, please accept this Letter of Intent for both Technical Services/ Pre-Opening Services and Hotel Management Services for The Regency Group’s review and acceptance as the Owner of the to-be-developed The Regency International Hotel (proposed to be branded as a Allwood Styles Rothbury). We look forward to working with The Regency Group on this exciting new project and will provide our services and assistance on the terms outlined as follows:

Pre-Opening: Operator is willing to provide $250000 as discussed in meeting but must comply to brand standard of Allwood Styles.

Management Term:Initial term of 5 years with another 5 years option to extend upon mutual consent. If key monies are accepted the contract terms should be 10 years with 10+10 options of renewal.  

Base management Fee: 5 % of gross revenues.  

Incentive Management Fee:8% of GOP

Termination Rights:No termination rights if key monies are accepted but the operator can terminate contract when we see fit.

Control:Operator to have operation control with collaboration of an owner’s representative in all key aspects. The operator is willing to provide approval rights in project initiation such as recruitment, budgets, capital expenditure, major management decisions and policies.

Employees are All Hotel Employees will be on the owner’s payroll.  Operator will handle training and development and to consult the owner or owner’s representative in case of termination of employee. Owner’s representatives have a final interview with the manager level employees being recruited.

employed by Owner:

Brand Standards: The owner agrees to comply with all brand standards of the Allwood Styles. Royalty fee to be excluded if restriction on association with other hotels within 15 km radius be lifted, along with acceptance of $12,000 key money for each room. 

Other: Operator is willing to operate a Mexican theme restaurant in the hotel.                                    Mr. Canavan, upon receiving a counter signed copy of this Letter of Intent we will proceed to drafting and finalization of a Pre-Opening & Technical Services Agreement and Hotel Management Agreement. We look forward to hearing from you. 



Director of Acquisitions and Development 

Allwood Hotel Group

Agreed to and Accepted by: 

The Regency Group

By: __________________________________

Its: __________________________________

Date: ________________________________

CC: Aaron Oh 

2. Dear Mr.Sandeep Pahari

Director of Acquisitions and Development 

Allwood Hotel Group

 RE: The Regency Group Letter of Intent

Proposed Allwood hotel (The Regency International Hotel)

Dear Mr. Pahari,

Thank you for your letter dated 5th May 2020. We are excited to receive your proposal and Letter of Intent. We wish to counter the terms of the contract with the terms outlined as follows:

Pre-Opening:We understand that your hotel brand provides best brand standards around the world in terms of operating a hotel but we already have a design concept ready for this hotel and redesigning according to Allwood hotels will cost us minimum $250,000. If Allwood subsidies the amount then we are happy to redesign according to the hotel standards and that means no pre-opening fees from the owner. 

Management Term:Initial term of 5 years with another 1 year option to extend upon mutual consent. We agree that this business requires patience and time to grow and we would like to assure you that if we find your services fruitful then we will be willing to extend the contract further.

Base management Fee: 1.5% of Gross revenue. We remain firm at 1.5% of the gross revenue as a base management fee as a final offer.

Incentive Management Fee:We are willing to provide reward through the incentive management fee by 8% only when the NOP is exceeded.

Termination Rights:Owner may terminate Operator 

  • Termination at will.
  • Operator inability to meet a given performance standard
  • Termination upon sale of the hotel.
  • Termination upon condemnation or casualty.
  • Other causes for termination include material breach of the contract, operator misconduct, bankruptcy, condemnation, and default.

Monies Invested by Operator:We agree on receiving $18,000 key money investment per room as the base of good partnership is sharing the burden along with the profit. And with the key money investment we believe the operator will be motivated to go above and beyond the profit margins of the hotel. And agree to no termination rights by owner for the period of contract on receiving key monies.

Control:Operator to have operation control with collaboration of an owner’s representative in all key aspects. Owner having invested huge amount in the hotel demands to have information regarding the key aspects of the hotel operation along with the approval rights.

Employees are 

employed by Owner: We are happy to agree to your terms which implies all hotel employees will be on the owner’s payroll. The Regency Group is protected from employment issues outside of the owner’s control.

Brand Standards:The owner is ready to agree with all the brand standards of the Allwood hotel but refuses to pay separate royalty fee on top of management fee. 

Restrictions:We expect this hotel to be your top most priority and do not want association with another hotel in Adelaide. In case of fail to meet this restriction the owner propose no base management fee to be paid by the operator as the operator will have divided attention and the customers might get divided by the same name. 

Other:We insist Allwood hotel group to consider the Mexican restaurant for the hotel and run a market analysis before taking further decision as we believe we should know what is trending in the market.

Mr. Sandeep Pahari, upon receiving a counter signed copy of this amended/ agreed terms of the Letter of Intent please proceed to drafting and finalization of a Pre-Opening & Technical Services Agreement and Hotel Management Agreement. We look forward to hearing from you. 


Jenisha Khadka

Owner’s Representative

On behalf of Mr James Canavan

Regency Group Pty Ltd.

Agreed to and Accepted by: 

Hotel Management Company Name

By: __________________________________

Its: Director of Acquisitions and Development

Date: ________________________________

CC: James Canavan and Aaron Oh

300 wds conclusion

300 wds reflection

it must show that I understand the asked 6 elements


Contracts and Negotiation


The contract between a merger of Allwood hotels and Regency Group PTY Ltd was unsuccessful due to different reasons. However, the contract shows all the elements of a valid contract. An offer has been made to the Regency Group PTY Ltd. to come in terms with a pre-opening fee of $250000, 5% of gross revenue, 8% of GOP and $12000 key money for each room.  The second stage is also seen by accepting the offer with some minor consideration which is the third stage of successful contract formation. The Regency group have come up with some points to consider for the Allwood Hotel as an operator. Regency Group has mentioned that they will need $250000 as redesigning charges and if Allwood is okay to provide that then no opening charges are required. However, instead of 5% of gross revenue, Regency is ready to give away only 1.5% of gross revenue as the final offer. In the same way, the termination rights, control, brand standards, restrictions and employment options are all revised and asked the Allwood to consider. Both the parties have shown an intention to legal relations through the communication and letter of intent for the contract. The terms and conditions are clearly mentioned in the letter of intent from the operator and Regent Group. Both the sides are capable of doing an agreement as they are already business intuitions which can go for a legal contract. In this context, it can be said all the 6 elements of a successful contract creation is properly visible in the exchange of emails between operator and regency group. However, the acceptance of personal offer or reconsideration of the revised terms and conditions have led to the non-completion of this contract.  


I have played the role of an operator in this negotiation and contract development process. It is quite clear that I have developed some useful terms and conditions that was a win-win situation for both the sides where the Regency Group would get rebranded as Allwood Hotels whereas the company will also get benefited with opening money of $250000. The offer made was a reasonable one and negotiated properly to come in terms with the Regency Group. However, the contract was unsuccessful. This has both positive and negative experiences for me.  

I have been able to develop a better understanding of the negotiation process. I have come to understand that for a contract to be successful, a couple of rounds of negotiation is necessary. A contract requires making an offer as well as reconsideration and negotiation on the terms and conditions. However, in my case, I have not gone with more than 1 round of negotiation with the Regency Group. By considering the offer of the Regency Group, I could have come up with new terms and conditions that could have helped the other side to comply with a few of the terms and conditions. I could have repeated the process a couple of times to convince the other party to come in terms which could have resulted in the success of the contract. However, as I have not followed these steps for this contract, my performance in the negotiation process is not good. In future, if a similar situation arises, I will try to focus more on negotiation either through over the mail, phone and face-to-face. Doing face-to-face communication for the negotiation process will help me to overcome the difficulties of expression that I faced in this contract where I only made use of phone and mail conversation for negotiation. I will also try to come with a win-win situation that will not harm my side as well as the other side by coming in terms of a contract.  

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