Hotel Operating Models: Lease, Management, Franchise

A hotel management agreement leaves the operating result with the owner: the operator earns a fee, and the profit and the loss stay with the owner of the building. Under a lease the operator rents the hotel, pays rent and answers for the result itself. A franchise gives only the right to a brand and a booking system. The choice of model decides who carries the risk of a bad season.

How the three models differ

According to the Pérez-Llorca lawyers, lease is chosen by owners who do not want operating risk and look for rent with a variable part. Management leaves operating decisions with the owner. On how a management company compares with running the hotel yourself, see the article on gestora and explotación propia.

What to look at in a management agreement

The HVS review of Europe of April 2017 gives a guide to the structure. The figures are nine years old: on fees and terms, 2026 contracts may differ, so use them as a list of points to negotiate, not as a market norm.

• Base fee 2–4% of revenue, plus an incentive fee usually 8–10% of adjusted GOP, with a trend towards 15% where the base fee is lower.
• Term. The average initial term in Europe is about 21 years, usually 15–25, with extensions in multiples of five or ten years.
• Performance test. RevPAR at 80–95% of the competitive set and GOP at 80–90% of budget, tested from the third or fourth year and only on failure two years in a row.
• FF&E reserve 3–5% of revenue a month.
• Staff. In most European contracts the owner formally employs the staff, and the operator recruits and trains line staff.
• Termination on sale is usually paid as the average fee for 24–36 months, multiplied by the remaining term or by a factor.

A twenty-year term with a formal performance test means a weak operator is hard to get rid of. This is the main question for an abogado before signing.

What a lease gives under Spanish law

A lease of a building for a hotel generally counts as an arrendamiento para uso distinto del de vivienda (a lease for a use other than housing) (art. 3 LAU). A caveat: Real Decreto-ley 29/2026 (in force since 8 October 2026, not yet validated by the Congress) removed from art. 3.2 contracts whose object is the accommodation of people. How that reads for a lease of a whole hotel I do not know; it is a question for an abogado. Such contracts under art. 4.3 rest on the will of the parties, and where they are silent on Título III LAU and then on the Código Civil. So most of the terms are written in the contract. Three places where a silent contract works against the owner:

1. A tenant carrying on a business may by default assign the contract or sublet the building without the landlord's consent, and the landlord may raise the rent by 10% on a partial sublease and by 20% on an assignment or full sublease (art. 32 LAU).
2. Art. 34 LAU gives the tenant compensation at the end of the term in a building where "actividad comercial de venta al público" (commercial activity with sales to the public) has run for five years. Whether it applies to a hotel is for an abogado to decide from the contract and case law.
3. A lease of a building and a lease of a business (arrendamiento de industria) fall under different regimes: the second goes by the Código Civil, not the LAU. Which one is chosen determines the scope of rights.

Worked example: what a fall in revenue does

A worked example, not a forecast. The assumptions are mine: hotel revenue 4 M€, fixed costs 1 M€, variable costs 40% of revenue, fixed charges (taxes, insurance) 300,000 €, FF&E 4% of revenue, base fee 3%, incentive 10% of adjusted GOP, lease rent 600,000 € a year.

Under management the owner loses about 55% of its result. Under a lease the owner loses nothing on paper, but the tenant goes into the red, and the question becomes the tenant's solvency. The risk does not disappear; it moves to another line. How to read such figures is shown in the article on the operator's report.

Franchise

A franchise sells a brand, and the hotel is run by the owner or by an operator the owner hires. According to the HVS review (September 2020, written for owners in the Middle East, so only a guide for Barcelona), the royalty is usually 3–5% of rooms revenue and the marketing contribution 1–2% of total revenue.

Who each model does not suit

Management does not suit someone who is not ready to accept losses in a bad season. A lease does not suit you if the operator is weak: the rent depends on its balance sheet. A franchise does not suit an owner without their own team. The indicators the choice rests on are covered in the piece on hotel project KPIs, and DNPI's general approach to hotels is on the hotel strategies page.