Why a Management Contract is Necessary Before a Deal
The buyer does not have to learn the rules of management after the purchase, but it is a weak model that creates distrust and future conflicts.
Before the transaction, a person should understand how his asset will work:
- unit-swatter
- How he's involved in the room fund
- What expenses are withheld
- how income is generated
- How reporting is provided and how personal use is regulated
The management contract is designed to predetermine the rights of the management company and the rights of the owner, and it turns the conversation about profitability from a verbal promise into a clear system.
What the management contract records
The management contract should cover several key blocks.
The first block is the right of the management company to surrender the unit and include it in the room fund, without which the Criminal Code will not be able to professionally sell the object.
The second block is the order of income formation:
- tariff
- salesmanship
- commission
- expense
- repair reserve and payments to the owner
The third block is exploitation:
- cleaning
- maintenance
- repair
- standard
- damages and condition of property
The fourth block is the personal use of the owner:
- whenever
- how many days
- How to notify the CC in advance and how it affects income
The fifth block is reporting: what, when and in what form the owner receives.
Why should a unit be included in the number fund
For an aparthotel, it is important that units work as a single hotel product: The guest buys the accommodation category, standard and brand, rather than the specific owner.
If each unit is handed out according to different rules, the object will lose control, there will be different prices, different conditions, different calendars, different quality and conflict with sales channels.
The management contract is required so that the unit is part of a single system, not a separate random apartment.
How to explain the commission in the contract
The contract should divide the commission of the management company and the commission of sales channels.
The Commission of the Criminal Code is a fee for the management of the object:
- service
- reporting
- settlement
- business-piece
- quality control
- Work with owners and tariff policy
The commission of the sales channel is a fee for attracting a guest through a tour operator, agency, electronic platform or partner.
The manager has to explain that it's not a double commission, it's different functions. The MC manages the facility. The sales channel brings the guest.
How to Explain Costs in a Contract
The buyer needs to understand in advance what expenses can be withheld from the proceeds.
These are cleaning, laundry, utility payments, supplies, minor repairs, engineering maintenance, repair reserve, canal commissions and other agreed expenses.
If the costs are clear before the deal, there are fewer conflicts; if they come unexpectedly, confidence drops.
The manager should not say “there will be almost no expenses”, but “the expenses are described in the contract in advance and reflected in the statements”.
What a Manager Should Not Do
The manager doesn't have to handle complex legal issues on his own, and if the buyer asks a precise legal question, you need to get a lawyer in.
You can't say, "It's a standard contract, don't worry," and that's a phrase that reduces trust.
Correct wording:
“I will explain the general business logic of the contract, and we will discuss the legal wording separately with the lawyer.”
How to answer the question: can not sign a management contract
If the project works as an aparthotel or a single resort fund, abandoning the management contract can destroy the model.
Manager's response:
“If a unit is acquired as a revenue asset within an aparthotel, it must participate in a common management model, otherwise the unit cannot be sold as a single hotel product, so the management contract is part of the investment construct.”
Answer to the question: what will happen in the management contract
The buyer asks, “What will be in the management contract?”
Strong answer:
"The contract will set out how the unit is transferred to management, how it participates in the room pool, who sells the placement, how commissions and costs are counted, how the repair reserve is formed, how you get the reporting, how personal use is regulated and who is responsible for damages, and it's a document that makes the management model transparent."
Practical conclusion
The manager must understand the management contract as the basis of trust. He does not have to be a lawyer, but must confidently explain to the buyer that the contract protects both parties: the CC gets the right to manage the object, and the owner gets the rules, accountability and protection of interests.