MIHM304 Hospitality Property Management and Development Strategies
Assessment 2 Outline
| Assessment title: Hotel Management Agreement Negotiation | Assessment weighting: 30% |
| Assessment type: Negotiations | Word 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.
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| 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.
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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.
Sincerely,
XXXX
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.
Sincerely,
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
