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Unhappily ever after? Termination of hotel management agreements

A much-publicized on-going dispute in Dubai between a hotel developer and an international hotel operator has brought to the fore some of the challenges Dubai hotel owners and developers would face in seeking to terminate hotel management agreements.

The dispute in this case puts Five Holdings (formerly SKAI Holdings) against international hotel operator Viceroy Hotel Group, which operates hotels under the “Viceroy” brand. Five Holdings is the developer of what was to be known as the Viceroy Palm Jumeirah hotel and residences, located on the iconic Palm Jumeirah in Dubai. Five Holdings had entered into a long-term hotel management agreement in 2013 with Viceroy under which Viceroy was to operate and manage the hotel.

Five Holdings underwent a group restructuring as part of which the group’s strategy appears to have changed from developing and contracting out hotels to third party operators to setting up its own hotel operating arm to operate hotels and residences developed by the group. As a result, Five Holdings sought to terminate the management contract with Viceroy and to appoint an affiliate of Five Holdings as the new operator of the hotel and a dispute over the termination ensued. Although tension between owners and operators is nothing new, what has caught the interest of commentators in this particular case has been the rather public nature of this dispute, with either side having issued a series of press statements addressing the dispute. It is often the case that management agreements provide for arbitration or other alternative dispute resolution mechanisms as opposed to referring disputes to courts, for purposes of ensuring the confidentiality of the dispute process and outcome.

From the available press reporting, it does not appear that there is any assertion of breach of contract being made by the developer against the operator, and this appears to be a case of what is known in legal parlance as “termination for convenience”. As far as we are aware, the dispute is ongoing and there has been no final court ruling in this dispute which would give guidance as to how similar disputes in Dubai might be approached in the future. Nevertheless, there are a number of issues which, in view of this dispute, hotel developers and owners in Dubai should bear in mind when entering into management contracts with hotel operators.

Read the article in its entirety here.

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