Articles Posted in Hotel Franchise & License Agreements

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26 April 2025

 

New California Supreme Court Decision Impacts Hotel Management Agreements:

Limitations on Damages for Intentional Wrongdoing Are Now Invalid

by

Mark S. Adams, Hotel Consigliere
Partner & Senior Member
JMBM’s Global Hospitality Group®

On April 24, 2025, the California Supreme Court issued a major decision in New England Country Foods, LLC v. VanLaw Food Products, Inc., clarifying that parties cannot use contract clauses to limit liability for intentional wrongdoing.

Under Civil Code section 1668, any attempt to restrict damages for willful injury — including breaches of fiduciary duty — is invalid as a matter of public policy, even between sophisticated commercial parties.

The decision is especially significant for hotel Owners and Management Companies, whose relationship often combines both contractual obligations and fiduciary duties. The decision requires Owners and Managers alike to rethink their approach both to drafting hotel management agreements’ (“HMAs”) limitation of liability clauses, and litigation strategies when disputes arise.

California Supreme Court Decision Impacts Hotel Management Agreements: Limitations on Damages for Intentional Wrongdoing Are Now Invalid

 Owner–Manager Relationships and Fiduciary Duties

In California and most jurisdictions, hotel Managers owe fiduciary duties to Owners, in addition to their contractual obligations. The fiduciary duty arises by operation of law, and despite disclaimers in the agreements, because:

  • The Manager controls the Owner’s property and financial operations,
  • The Manager acts as the Owner’s agent in dealings with third parties,
  • The Owner entrusts the Manager with discretionary authority over the hotel’s operations.

(Prickett v. Bonnier Corporation (2020) 55 Cal.App.5th 891, 901; Woolley v. Embassy Suites, Inc. (1991) 227 Cal.App.3d 1520; Pacific Landmark Hotel, Ltd. v. Marriott Hotels, Inc. (1993) 19 Cal.App.4th 615, modified, 19 Cal.App.4th 1552 (1993); Marriott Intern., Inc. v. Eden Roc, LLLP (N.Y. App. Div. 2013) 104 A.D.3d 583; FHR TB, LLC v. TB Isle Resort, LP. (S.D. Fla. 2011) 865 F.Supp.2d 1172.

Thus, even where the Management Agreement is carefully drafted, the law likely imposes independent fiduciary duties that cannot be waived by contract — including duties of loyalty, care, and disclosure.

Typical Damages Limitation Language Hotel Management Agreements

Many hotel management agreements contain broad limitations of liability, for example:

Limitation of Liability Clause:

“Notwithstanding any provision of this Agreement to the contrary, Manager shall not be liable to Owner for any consequential, indirect, incidental, special, exemplary, or punitive damages (including loss of profits or business interruption) arising out of or relating to Manager’s performance or failure to perform under this Agreement, regardless of the cause of action, even if advised of the possibility of such damages.”

Clauses like this are designed to cap the Manager’s exposure to damages arising from operational missteps or disputes; however, under the Supreme Court’s new decision, such clauses cannot be enforced to shield the Manager from damages resulting from willful misconduct or breaches of fiduciary duty.

When Breach of Contract May Also Be a Breach of Fiduciary Duty

The line between mere breach of contract and fiduciary breach is critical. If a Manager simply fails to meet operational standards — e.g., slow responses, minor budget overruns — the Owner’s remedy may be confined to contract damages, and typical damages limitations would apply; however, where the Manager’s conduct includes:

  • Self-dealing (g., favoring affiliates, steering business to related entities),
  • Bad faith (g., prioritizing short-term gains to boost incentive fees at the Owner’s long-term expense),
  • Gross mismanagement coupled with concealment, or
  • Systematic violations of Owner’s instructions or Owner’s interests,

The Owner may allege breach of fiduciary duty — an independent tort — triggering full tort remedies. In such cases, limitation of liability clauses would likely be invalid under Civ. Code, § 1668, as interpreted by New England Country Foods.

 

Key Takeaways for Hotel Owners and Managers

Hotel Owner Perspective Management Company Perspective
Damage limitations for intentional wrongs Cannot be used to shield the Manager from liability for breaches of fiduciary duty, fraud, or bad faith conduct. Exposure to full compensatory and potentially punitive damages where claims go beyond pure breach of contract.
Standard of conduct Alleging fiduciary breaches enhances remedies and invalidates contractual caps. Argue that claims are confined to pure contract breaches to maintain protection under limitations clauses.
Litigation strategy Plead independent fiduciary breach and/or intentional torts (e.g., interference with contractual relations, fraud). Focus defenses on economic loss rule, arguing conduct falls squarely within contract expectations.

 

Implications for Hotel Management Agreements CONTINUE READING →

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20 February 2025

Click here for more articles on Hotel Franchise & License Agreements
or here for Hotel Management Agreements.

The asset-light model has become the dominant strategy for major hotel brands, allowing them to expand without the capital-intensive burden of real estate ownership. But what does this mean for hotel owners and investors?

In a recent article from Hospitality Investor, Jim Butler, Chairman of JMBM’s Global Hospitality Group®, explains why this model continues to thrive.

“It solves the capital restraint on hotel company expansions…the market gives higher valuation to companies that are less capital dependent for growth.”

By focusing on management and franchise agreements instead of property ownership, hotel brands have sold off billions in real estate while maintaining control over their flags. This has fueled massive growth, but it also creates challenges for owners, who must carefully navigate long-term agreements that can last for decades. CONTINUE READING →

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21 February 2024

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on Hotel Management Agreements and Hotel Franchise & License Agreements.

To Brand or Not to Brand

by Robert Braun, Co-Chair, JMBM Cybersecurity and Privacy Group;
Senior Member, JMBM Global Hospitality Group

While some companies in some industries have a tendency to consolidate and eliminate brands, the hotel industry is different. Most of the leading hotel companies with brands, such as Marriott, Hilton, IHG, Hyatt, and Accor, regularly acquire or create new brands or flags. Today, Marriott has 30 flags, Hilton has 22, IHG has 14, Hyatt has 29, and Accor has 40, and that’s just the tip of the iceberg. With so many flags to choose from, it’s easy to overlook another choice – no brand at all. While picking a brand is an obvious choice, the possibility that operating a hotel without a brand may be the better choice.

Why Choose an Existing Brand?

The major brands provide a number of benefits to hotel owners. A few of them are:

Name Recognition.

Perhaps the biggest benefit of branding a hotel is name recognition, and brands work to maximize that benefit. Hotel companies spend time and effort to make sure the traveling public recognizes the flag, and this makes it easier to choose the hotel when others might be available. Their use of traditional advertising, social media, spokespersons and other techniques are well-honed and effective. Most importantly, a hotel guest that has a positive experience at one property will assume – not always correctly – that the experience will be the same at other properties.

Brand Standards

Brand recognition is part of brand standards, and brand standards can be a benefit to owners as well. Even as they represent costs of compliance, they help create uniformity among different flags, and reinforce the traveling public’s interest in specific hotel flags.

Reservation Systems.

Hotel companies invest in reservation systems that make booking a hotel simple, and are designed to maximize a traveler’s likelihood of actually booking a room, not just visiting a site.

Loyalty Programs.

While loyalty programs can be a financial burden for hotel owners, they are a draw for hotel guests and increase occupancy. Travelers are enticed by earning awards for travel, and even if the hotel does not recoup the advertised or actual daily rate, other expenditures – food and beverage, onsite services and the like – can provide additional financial benefits.

Support

When things go wrong, hotel brands can be a source of support. They can provide trouble-shooting expertise, and for brand manages, can provide a deep bench of experienced hotel workers. CONTINUE READING →

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18 January 2022

“Practice Group of the Year” awarded to
JMBM’s Global Hospitality Group
by Law360

Jeffer Mangels Butler & Mitchell LLP (JMBM) is proud to announce that the Global Hospitality Group® (GHG) has been selected as one of Law360’s Practice Groups of the Year. This award “honors the practices behind the litigation wins and major deals that resonated throughout the legal industry in 2021” and winners are chosen out of hundreds of submissions. The recognition is a result of the unsurpassed experience of the GHG team members who, for the past 30 years, have helped clients with more than 4,500 hospitality properties, valued at more than $112 billion.

Some notable accomplishments by members of the GHG in 2021 include:

  • Workout, recapitalization, and repositioning of a $1 billion mixed-use lifestyle hotel project
  • Sale of an NYSE-traded hotel REIT’s entire portfolio of 15 upscale, select-service hotels for $305 million
  • Closing more than $210 million in Commercial Property Assessed Clean Energy loans (C-PACE)
  • Assisting clients with hotel management and franchise agreements for properties worth more than $1.5 billion
  • Serving as primary counsel for lenders on more than $2.2 billion in the distressed hotel, retail, and office loans during the global pandemic, including over $500 million for a single client

CONTINUE READING →

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16 November 2021

LOS ANGELES—The Global Hospitality Group® (GHG) of Jeffer Mangels Butler & Mitchell LLP (JMBM) has released an updated version of its Hospitality Credentials, detailing unsurpassed experience by providing representative clients and properties the GHG has worked on over the past 30 years. These Credentials show how the GHG has helped clients with more than 4,500 hospitality properties, valued at more than $112 billion.

Some notable accomplishments by members of the GHG over the last 12 months include:

  • Workout, recapitalization and repositioning of a $1 billion mixed-use lifestyle hotel project
  • Sale of a NYSE-traded hotel REIT’s entire portfolio of 15 upscale, select service hotels for $305 million
  • Closing more than $210 million in Commercial Property Assessed Clean Energy loans (C-PACE)
  • Assisting clients with hotel management and franchise agreements for properties worth more than $1.5 billion
  • Serving as primary counsel for lenders on more than $2.2 billion in distressed hotel, retail and office loans during the global pandemic, including over $500 million for a single client

CONTINUE READING →

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28 April 2021

Click here for the latest articles on Hotel Franchise & License Agreements.

After a year of economic upheaval in the hospitality industry, hotels are making big changes as they look ahead to recovery. Oftentimes these changes involve a complete rebrand, and this leads to questions about what is negotiable in a franchise agreement. In the article below, Bob Braun, senior member of JMBM’s Global Hospitality Group® and Co-Chair of the Firm’s Cybersecurity & Privacy Group, talks about 5 important franchise terms that can usually be negotiated.

Hotel Franchise Lawyer: 5 Things to Negotiate
in your next Franchise Agreement

by Bob Braun

To say that the past year has been a shock to the hospitality industry is a gross understatement. While many believe that a recovery is in sight – even if requires high-powered binoculars to see – most properties are being forced to re-evaluate their status and prospects. Many hotel owners – and brands – are re-evaluating whether a current brand is the right brand. While many hotels did well simply because of the surging economy during the long post-recession boom, the new normal, whatever it may be, requires that hotel owners, operators and brands rethink whether what was right in 2019 is right in 2021 (and will be right for the next ten years).

As a result, many hotels are changing their brands and management. This may be the impact of lenders foreclosing on properties, changes in ownership, and increasingly, the mutual agreement of a brand and a hotel owner that the brand may not be the optimal operator, or the brand may not be the optimal brand for the property.

During this time of change, it’s important to reacquaint ourselves with some of the basics of hotel franchising.

What’s really negotiable in a franchise agreement?

The most common question we hear from clients is, “What’s really negotiable in a franchise agreement?” While brands take the position franchise agreements are not negotiable, our experience with hundreds of hotel franchise agreements is that there knows that there is wiggle room to get some important concessions if you know what to go for and don’t waste your effort where it won’t do any good. CONTINUE READING →

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5 April 2021

Click here for the latest articles on Buying and Selling a Hotel and here for the latest articles on Hotel Franchise & License Agreements.

Bob Braun recently wrote an article for Today’s Hotelier on the issues hotel owners should watch for when selling a property with a franchise agreement. He explores when sellers should start speaking to their franchisor during the sale process, what purchasers can expect when negotiating a new franchise agreement, how guarantees should be handled in a sale or transfer, and several other concerns that may arise when a branded hotel is sold.

On negotiating a franchise agreement, Bob notes:

“Franchise agreements are intentionally designed to be highly favorable to the brand, and brands are unwilling to make changes. That position is even more pronounced in a change of ownership…A purchaser should be aware that, absent special circumstances, brands rarely provide an area of protection to avoid competition, a ramp-up of fees, or other variations from their forms.”

Click here to read the full article. CONTINUE READING →