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Applying performance tests in hotel management agreements

Autor: Jonathan Berger
Fecha: Apr. 1997
De: Cornell Hotel & Restaurant Administration Quarterly(Vol. 38, Issue 2)
Editorial: Sage Publications, Inc.
Tipo de documento: Article
Extensión: 5.661 palabras

Resumen:
Performance tests in hotel management contracts have been one of the most important issues dealt with during the negotiation
process. A salient feature of the management contract, which states the agreed-upon returns of the owner, is a consideration in
performance testing. Performance tests play an important role in influencing the hotel owner's decision to enter into a management
contract. Hotel management companies have been using financial performance tests based on returns, operating margins and
revenue per available room.

Texto completo:
The best performance test in a management contract is one that is fair to both managing firm and owner - and also provides an
incentive for the managing firm to achieve the owner's financial objectives.

Of all the issues addressed in the negotiation of a hotel management agreement, among the most difficult to resolve is establishing
an appropriate performance test that is acceptable to both parties. This article discusses considerations affecting how a performance
test is structured from the perspective of both parties and analyzes some of the tests frequently used both in terms of the parties'
respective interests and the effect of such tests on various other elements of a transaction. While an individual test involving net
operating income can be used effectively to protect an owner's interests, I suggest combining two or more different tests to achieve a
greater degree of fairness for both parties in the management contract.

A typical performance test sets forth the financial assumptions on which the management contract is based, stating agreed-upon
returns that the manager should provide the owner in exchange for the management fees to be derived from operating the hotel. The
performance test involves purely commercial considerations. If actual results depart materially from pro forma expectations
underlying the transaction, the owner can demand a right of termination without the need to make any other showing.

Some contracts, however, specify ways in which the management company may cure the shortfall by reimbursing the owner
(sometimes in the form of a noninterest-bearing loan).' Such provisions cause confusion between performance tests and default
clauses. Although the two provisions may operate in a similar fashion, their conceptual underpinnings are different. The typical default
clause permits the owner to terminate the management agreement in the event of the insolvency of the manager, failure of the
manager to pay the owner's return in accordance with the agreement, or some other material breach of the agreement that is not
cured within a specified period following notice. A default clause is invoked when the manager has committed an act or permitted to
exist a condition of such materiality as to constitute a breach of contract. If there is a bona fide dispute as to the existence of a
default, however, and the matter has been submitted to a third party for resolution, the right of termination will be stayed pending
such resolution.

In contrast, a performance test is self-executing, at least in theory. The manager may be the most reputable available; its financial
condition may be impeccable; it may have scrupulously carried out the tasks assigned it under the agreement; and it may have
earned consistently high accolades in the trade press. If the hotel has failed to operate at the stipulated level, none of these factors
will stand in the way of the owner's right to terminate the agreement and engage another manager. In practice, however, decisions
regarding termination are not always clear-cut.

Another frequent source of confusion regarding performance tests relates to limitations placed on options to extend the contract.
Management contracts involving most of the major chains give the manager a unilateral right to extend the contract beyond its initial
term. A typical clause might provide for an initial term of five or ten years with unilateral options to extend the contract for up to three
successive five-year terms. In recent years, however, competitive pressures have significantly undermined management chains'
extension options. In place of a unilateral right of extension, many contracts now specify performance criteria that must be met before
the chain can exercise its renewal option. Frequently these criteria are more stringent than those used for performance tests, on the
rationale that options to extend are unusual privileges to be granted only if performance has met or surpassed an owner's
expectations.

Genesis

Performance tests are often first raised in the context of a management company's efforts to persuade an owner to enter into a
management contract with it. This is a function of the current intense level of competition among management companies and the
many management alternatives available to owners. Among the factors investors take into account in their decision to engage a
particular management company is that company's informed judgment as to how the property could be expected to perform under its
management. Owners usually insist that these judgments take the form of multi-year cash-flow projections. Considering the many
factors that affect a hotel's performance, on the other hand, management firms are understandably reluctant to provide such
projections unless they are accompanied by carefully worded disclaimers. Those disclaimers generally set forth the assumptions
upon which the projections are based including, where appropriate, information furnished by the owner, as well as a list of variables
beyond the manager's control that could affect future results (e.g., tax assessments).

The management company must be careful with its projections because the owner can be expected to use them as a basis for setting
performance criteria in the management agreement. In the current market environment, most management firms accede to having a
performance test and seek to fashion a test that is both fair and reasonably achievable.

A careful market analysis, which any manager should be expected to conduct as a matter of course, can indicate what is reasonably
achievable. What is fair, however, often depends on one's vantage point. Moreover, a number of disparate considerations need to be
weighed against one another, including the various other elements of the transaction (e.g., value of flag, other technical services and
possible financial contributions offered by the manager). To accommodate all of these considerations, each party may have to accept
performance terms that it considers less than optimal.

Performance Tests

Management contracts entered into during the past several years have stipulated a number of different financial performance tests.
Although there is wide variation within each broad category, the basis of these tests can be broadly categorized as follows:

* A hotel's returns,

* A hotel's operating margins, and

* A hotel's revenue per available, room (REVPAR).

While I analyze each of these categories in a fairly even-handed fashion, it is clear that the return-based tests, which generally
measure income before fixed costs (IBFC), are the best measures of performance, at least from the owner's perspective. A test
based on IBFC, or net operating income (NOI), helps align the interests of the management firm most solidly with those of the owner,
since both are focused on return.

As a side note, although this article focuses on financial tests, contracts over the years have based tests on such nonfinancial criteria
as quality ratings accorded by the AAA, Mobil, or other independent bodies. While the use of performance tests tied to nonfinancial
criteria may be based upon perfectly rational business considerations (for example, when the owning entity is a public authority and
the hotel is an adjunct to a public project such as an upgraded convention center), for the vast majority of hotel transactions, such
tests bear at best a marginal relationship to the owner's financial objectives.

Many Happy Returns

Performance tests geared to a hotel's returns can generally be divided into those based on cash flow (i.e., cash generated after fixed
charges) and those based on operating income. From the owner's perspective, the advantage of a cash-flow test is that it tracks the
owner's actual cash return from the property. From the manager's perspective, however, such a test is flawed because it includes
items over which the manager has no control. Considering the hypothetical instance in the box above, say that the hotel experiences
a cash-flow deficit of $300,000 in the third year instead of a break-even position for that year. Let's also assume that the $300,000
difference is wholly attributable to an unanticipated increase in real-estate taxes, over which the management company has no
control. Depending upon how the performance test is structured, that difference could trigger a right of termination where no such
right might otherwise have existed. One could question whether termination under these circumstances would be fair.

Irrespective of the test eventually arrived at, whenever an owner requests a multi-year projection for its property, the prospective
manager can anticipate that the owner will seek to use the projected numbers for purposes of fashioning a performance test. Thus, a
management firm faces a dilemma: Make the forecast too conservative and lose the contract to another manager, or make the
forecast too aggressive, sign the contract, and be saddled with a hard-to-meet performance test.

Because of the vagaries of the marketplace, and the time it takes to achieve operational stability, managers generally seek a
transition period before a performance test becomes effective. Since the results of a single year may not constitute a fair measure of
performance, managers generally propose that any test be based on results achieved over an extended period. Owners, on the other
hand, generally prefer tests that permit them to terminate at the earliest possible opportunity even if they have no intention of
exercising that right. A frequent compromise entails a contract provision that the performance test will take effect immediately using
the results achieved over a number of years. Under such a formula, the right of termination would be triggered if the required returns
were not produced in, say, any two consecutive years or any two of three or three of five consecutive years. A variation on this theme
involves cumulative results over a particular time period. While a single year of returns below projections would not trigger termination
rights, the management firm would face termination if the cumulative return at the end of the period is not at least equal to the total of
the projected annual returns.

Testing Operating Margins

The rationale for a test based on a hotel's operating margin is that it is a reliable guide to a manager's effectiveness. Say that an
owner engages a new management firm for its property, for which the former manager had been able to generate income before
fixed charges of only 20 percent of revenue. It follows (according to this line of reasoning) that an immediate improvement in the
margin to 28 percent under new management is the result of superior performance. In a moment I will explain why that conclusion is
not always accurate.

Tests based on profit margins are usually based either on absolute percentages or on comparison to percentages achieved by a peer
group of hotels. Both of those approaches have shortcomings. Tests based on absolute percentages, for instance, ignore
unanticipated changes in the marketplace that could profoundly affect performance. (The same objection can also be raised against
tests based on a hotel's returns since they, too, are a function of preordained targets.) It is in large part because of these
uncontrollable factors that management companies generally insist that there be a mechanism to cover circumstances beyond their
control, as I explain below.

The chief weakness of tests based on comparative profit margins lies in attempting to assemble accurate and comparable data from
the various hotels purporting to represent the peer group. This task carries the twin challenges of establishing an appropriate peer
group and assembling accurate data from that group. Owners and operators sometimes find it difficult to reach a consensus on which
properties constitute a fair basis for comparison. The job of data collection is frequently assigned to a public-accounting firm that is
instructed to disclose summary data but not results from individual properties. To ensure an "apples-to-apples" comparison, however,
the parties often feel it necessary to verify that the data from every member of the peer group are accurate and that the margin has
been calculated uniformly. Some managers are reluctant to rely on confirmation from a third party without an opportunity to test the
accuracy and consistency of the figures used. One possible compromise is to agree to use data available from Smith Travel
Research.

Both the absolute and comparative operating-margin tests raise two major concerns. First, the test must not encourage short-term
expediency at the expense of a property's long-term prospects. Looking again at the hypothetical case discussed above, if the
improvement in the hotel's margin from 20 percent to 28 percent was achieved solely through reductions in maintenance and
marketing expenditures, the "benefits" realized by the owner from the change in management may be short-lived. Second, a test
based on a hotel's profit margin might discourage the manager from applying revenue-management principles to seek low-margin
business that enhances cash flow when high-margin business is unavailable. Indeed, some observers have noted that basing
managers' compensation on a percentage of revenues results in reduced expenses and sales, and, thus, less-than-optimal IBFC.
The objective of a management contract should be to provide the highest practicable total return, so an operating-margin test must be
structured so that this objective is not compromised.

REVPAR

Performance tests tied to a hotel's revenue per available room are based on the assumption that rooms revenue is a reliable indicator
of a hotel's overall performance - a reasonable assumption in the hotel industry. All things being equal, a hotel that enjoys high
occupancy levels combined with high average daily room rates is likely to generate a higher operating profit than a similarly located
and configured hotel with lower occupancy levels and ADRs.

REVPAR tests, however, ignore all sources of revenue other than rooms revenue. Although for most hotels rooms revenue accounts
for the predominant share of operating profit, significant revenue shortfalls from other departments can have a material effect on a
hotel's overall returns.

For example, a full-service hotel with a high REVPAR that depends on extensive local patronage for its banquet business might
produce relatively mediocre returns if it fails to attract that patronage. Likewise, a five-star property with a high REVPAR might
achieve disappointing results if its management operates a poorly patronized gourmet restaurant.

A second problem with REVPAR tests is that they ignore the expense side of the profit equation. A hotel that achieves an
astonishingly high REVPAR by maintaining a large, expensive staff may well be less profitable than a hotel that controls its expenses
and achieves a lower REVPAR.

Third, because REVPAR tests are generally based on performance relative to that of a peer group, they also raise concerns about
accuracy of data, uniformity of the calculations, and the composition of the peer group.

The foregoing concerns do not necessarily disqualify REVPAR tests from serious consideration for use in performance tests. Instead,
these concerns should alert parties using REVPAR tests to take due account of their limitations. Since REVPAR tests fail to address
expenses, for example, the owner might consider a separate provision in the management agreement that accords the owner some
authority with respect to the formulation of operating budgets. (This is itself a sometimes problematic "solution," if only because it
blurs the separation between owner and manager should termination become necessary, as discussed below.)
Multiple Tests

Because each of the tests commonly used has shortcomings, I suggest that the most effective solution is not a single test but instead
a carefully considered combination of tests. These tests can at the same time be designed to meet the owner's most urgent concerns
and protect the operating firm from the consequences of uncontrollable events. The tests may be used in conjunction with each other
or as alternatives to each other. That is, the trigger for termination could be either failure to pass any single test, failure to pass more
than one test, or failure to pass the entire set of tests. The box on the next page gives an example of contract language that
demonstrates the use of multiple tests.

The case in that box (page 30) involves two sets of two tests stretching over multiple years. The first set of tests comprises a
comparison of the property's profit margin (the ratio of IBFC to revenue), and a comparison of the property's REVPAR, in each case
to that of a peer group.

Under this first set of tests, the operator faces termination only if it fails both tests for two of any three consecutive years. The second
set of tests comprises a test of absolute return and a profit-margin test relative to the peer group. To avoid triggering a right of
termination, the manager would have to meet one or the other of these tests in each pair of consecutive years after the first year of
operation. The required amounts in the test of absolute return are adjusted annually for inflation.

From the management company's standpoint, the first set of tests appears to be less onerous than the second set because the right
of termination is triggered in set one only if both tests are not met (clause 1 in the box on page 30), whereas the right of termination is
triggered in set two if either test is not met (clause 2 in the same box). But the second set of tests goes into effect only after the close
of the first full contract year, while the first set goes into effect immediately. Moreover, the right of termination provided in the second
get of tests is tied to a failure to meet the tests in consecutive years, while the first set measures any two out of three consecutive
years. Note also that the required operating income ratio in the second set of tests is lower than that in the first set. Which set of tests
is in fact the more onerous cannot be determined without carefully analyzing the forecasts and all of the variables that could affect
actual results.

Avoiding Termination

Since the consequences of failing to meet a performance test are so extreme, managers frequently seek to include in the agreement
provisions that permit them to continue managing the hotel even after they fail to meet a performance test. Two of the most
commonly used mitigating provisions involve causes beyond the manager's control and an opportunity to cure any shortfall.

Out of control. Many contracts contain a clause that gives the manager an opportunity - and the burden of proof - to establish that the
failure to meet the test was due to causes beyond its control. Claims attributing the performance shortfall to causes beyond the
manager's control may be heard by courts, arbitrators, or other agreed-upon dispute-resolution panels. As might be expected,
managers frequently prefer a forum in which the decision makers have in-depth experience in the hotel industry, and thus presumably
a sensitivity to the various un-anticipated factors that could adversely affect a hotel's performance.

Contingencies that might qualify under a provision of this kind vary widely. The most restrictive clauses allow relief only under classic
force majeure circumstances (e.g., acts of God such as floods, windstorms, and earthquakes; wars, revolutions, and civil strife; and
strikes, embargoes, and other like contingencies). A less-restrictive clause might also include economic factors such as a severe
recession. (If the test is based on comparative results, however, the logic of invoking such an excuse becomes tenuous.)

A frequently debated issue concerns the effect of the owner's own actions, or failure to act, on the manager's performance. For
example, say that the management agreement requires the owner's approval of all operating budgets, but the owner withholds
approval until the manager agrees to a marketing budget that in the manager's best judgment is inadequate. In this case, the
manager would like the performance test to allow for the fact that the owner's action was the reason for the manager's failure to meet
the test. Even if such an excuse is not explicitly set forth in the agreement, a court or arbitration panel might nevertheless seize on
owner action (or inaction) to prevent an otherwise inequitable result. An owner would thus be well advised to weigh carefully the
possible unintended effect of provisions in the agreement that give it influence over day-to-day hotel operations on its ability later to
invoke a performance test. One possible solution to that problem is to include a provision that expressly excludes good-faith
decisions made by the owner in the exercise of its approval rights as a valid excuse for failure of the manager to meet a test. An
example of contract language that provides for arbitration of questions pertaining to performance short falls allegedly attributable to
causes beyond the manager's control, and which distinguishes impermissible owner interference from owner's good-faith exercise of
its approval rights, is shown in the box on the facing page.

Taking the cure. Many contracts contain a clause that permits the manager to "cure" the performance shortfall by paying to the owner
a designated amount - although that cure is often subject to limitations. From the manager's standpoint, the amount to be paid should
be the difference between the actual return and the minimum performance as established by the performance test. That is, the cure
should offset whatever financial event triggered the right of termination. For example, say that the test is triggered by a failure of the
hotel to cover fixed costs for three consecutive years, and that fixed costs exceeded operating income by $500,000 for each of the
first two years. In the third year the fixed costs again exceed operating income, but this time by only $100,000. Under a minimum-
cure formula the manager would be obliged to pay that last $100,000 to avoid termination, thereby meeting the minimum amount
specified by the test. As might be expected, owners frequently demand a more onerous cure privilege. In the foregoing case the
owner might demand as much as $1.1 million to cover all fixed costs for the three years in question.

When multiple tests are used, the right of cure will generally be based on the test that is not met for the year in which the right of
termination would be triggered. If the trigger for termination is the failure to pass any of the tests and more than one have not been
met, then the cure option will be based on the test that requires the highest payment necessary to avoid the trigger. Since
performance tests are at least in theory based upon a minimum acceptable level of performance, owners sometime seek to limit the
number of occasions on which cure options can be exercised. The box of sample contract language shows a cure option for the first
set of performance tests in that box (in which the property's profit margin and REVPAR are compared to those of a peer group)
coupled with a limitation on the exercise of such option. If the manager fails both tests, it must make up the difference for whichever
mark it misses by the greater amount.

A Question of Balance

As with other provisions in a management agreement, performance tests cannot be considered in isolation. Although increased
competition has shifted bargaining power in favor Of owners - thus allowing such tests to become more prevalent - knowledgeable
parties understand that performance tests represent only a piece of the puzzle. If an owner insists on tough performance tests that
kick in early and afford the manager no opportunity to remain in place should the test not be met, the owner ought not to be surprised
if the prospective manager becomes intransigent regarding other issues. The manager might withdraw or reduce a loan facility to
cover cash-flow shortfalls, for example, or require more onerous repayment terms. Provisions relating to the subordination of the
incentive fee might become less generous, or the penalty for termination on sale might be increased.

If the manager also has an equity position in the property, the performance test in the management agreement will likely affect the
parties' rights and obligations under other instruments as well. If the owning entity is a partnership, for instance, the partnership
agreement will need to specify the circumstances under which the partnership can exercise the right of termination accorded it under
the management agreement and, if termination triggers a buyout obligation on the part of the other partners, the price at which the
manager's partnership interest must be bought out. Performance tests, while certainly important instruments to protect owners
against the risk of subpar management performance, thus cannot be considered in isolation from other provisions of a management
contract. They need to be viewed in the context of the overall transaction and their use needs to be tailored to the various commercial
objectives sought to be achieved.

1 For an extended discussion of hotel management agreements, see: James J. Eyster, "The Revolution in Domestic Management
Contracts," Cornell Hotel and Restaurant Administration Quarterly, Vol. 34, No. 1 (February 1993), pp. 1626; and James J. Eyster,
The Negotiation and Administration of Hotel and Restaurant Management Contracts (Ithaca, NY: Cornell University, 1987).

RELATED ARTICLE: Performance Testing

The following hypothetical example illustrates the potential pitfalls of strict application of performance tests. Consider the following
scenario:

* The owner's projected and actual fixed charges total $3.5 million for the first year, $3.6 million for the second year, and $3.7 million
for the third year.

* According to the manager's projections, income before fixed charges will be $3.3 million for the first year, $4.0 million for the second
year, and $4.7 million for the third year. Thus a $200,000 cash-flow deficit is projected for the first year, a $400,000 cash-flow surplus
is projected for the second year, and a $1.0-million cash-flow surplus is projected for the third year.

* Actual income before fixed charges is:

- for the first year: $2.3 million,

- for the second year: $3.1 million, and

- for the third year: $3.7 million.

Thus, instead of the projected $1.2-million cumulative cash-flow surplus after three years, the hotel has sustained a cumulative cash-
flow deficit for this period of $1.7 million.

Given these disappointing results, should the owner have the right to terminate the management agreement? The answer depends in
part on the other provisions in the management contract, as well as other circumstances affecting performance. Suppose the
manager had furnished a $3-million subordinated loan for operating equipment and working capital and during this period of subpar
performance had furthermore waived half of its basic management fee. Suppose results for this period were adversely affected by a
severe recession or an airline strike that created major disruptions in the local economy. Suppose that despite the disappointing
returns, the hotel's revenue per available room was the highest of any of those properties with which it competes. In any of those
cases, the owner may be ill-advised to remove the managing firm, which may be creating an optimum return under the
circumstances. - J.B.

RELATED ARTICLE: Sample Contract Language

The following contract language gives examples of two performance tests, an arbitration clause, and an operator-cure provision,
rendered in a typical legal format.

Performance Test Clause 1: Comparative Profit Margin and REVPAR

If for any two of three consecutive Contract Years:

(a) the ratio of Income Before Fixed Charges to the Revenue shall be less than 90 percent of the average ratio of Income Before
Fixed Charges to the Revenue for the Peer Group (as defined below), and

(b) the REVPAR Of the Hotel shall be less than the average of the REVPAR for the Peer Group,

then the Owner shall have the right, exercisable by notice to the Manager within 60 days following submission of the certified financial
statements for the second of such Contract Years for which both of the foregoing tests shall not have been met, to terminate this
Agreement upon not less than 90 days prior notice. For purposes of this Section, the term "Peer Group" shall mean those hotels
listed in Exhibit 4 annexed hereto [editor's note: Exhibit 4 as it would exist in an actual contract is not shown here]; provided,
however, that if at any time in the judgment of the Independent Outside Accountant reliable data for any of the hotels so listed cannot
be obtained, then the "Peer Group" shall be deemed to consist only of those hotels for which reliable data can be obtained, so long
as such hotels have in operation an aggregate of not fewer than 1,200 guest rooms. If in the judgment of the Independent Outside
Accountant reliable data on hotels in the Peer Group having an aggregate of at least 1,200 guest rooms in operation cannot be
obtained, then the parties shall forthwith negotiate with one another in good faith for purposes of adding to the Peer Group a sufficient
number of other representative hotels for which reliable data can be obtained in place of those for which reliable data are not
available to enable the Peer Group to have an aggregate of not less than 1,200 guest rooms in operation and in respect to which
reliable date are available.

Performance Test Clause 2: Absolute Return or Comparative Profit Margin

If for any two consecutive Contract Years after the first full Contract Year either of the circumstances described in subparagraphs (a)
or (b) below shall exist:

(a) Income Before Fixed Charges shall not exceed the product of (i) $1.250 million and (ii) a fraction the numerator of which shall be
the average level of the Consumer Price Index for All Urban Consumers (CPI-U) U.S. City Average All Items, as published by the
United States Department of Labor (the "CPI") for the Contract Year in question and the denominator of which shall be the level of the
CPI as of December of the calendar year immediately preceding the First Contract Year, or

(b) The ratio of Income Before Fixed Charges to the Revenue shall be less than 80 percent of the average ratio of Income Before
Fixed Charges to the Revenue for the Peer Group [note: see clause 1 for definition of the Peer Group],

then the Owner shall have the right, exercisable by notice to the Manager within 60 days following submission of the certified financial
statements for the second of such Contract Years, to terminate this Agreement upon not less than 90 days prior notice.

Right to Arbitrate Purported Termination

Upon receipt of the foregoing notice of termination, the Manager shall have the option either to (i) acquiesce in such termination or (ii)
contest such termination. Should the Manager elect alternative (ii), it shall serve a notice to such effect on the Owner within 30 days
of its receipt of the Owner's notice of termination, which notice shall set forth its intention to submit the matter to arbitration in
accordance with Section 10.01 hereof [note: Section 10.01 will likely spell out the arbitration rules to be applied, the location of the
arbitration proceeding, the number of arbitrators, and the right of the prevailing party to have the arbitration decision or award entered
in a court of competent jurisdiction if such entry is necessary for enforcement], and shall commence such arbitration proceeding
within 10 days thereafter. The date of termination shall thereupon be extended until 30 days after a final award has been entered in
such arbitration proceeding that determines that the Manager has failed to sustain the affirmative burden of proving that the failure to
meet the foregoing test was due to strike, fire, flood, war, civil strife, terrorism, embargo, default by the Owner in the discharge of its
obligations under this Agreement (but not the good-faith exercise by the Owner of its approval rights hereunder), or any other
circumstances beyond the Manager's reasonable control which could not reasonably have been foreseen in advance and which
substantially and adversely affects the operation of the Hotel. Should the arbitration panel decide that the Manager has sustained
such burden of proof, however, the aforesaid notice of termination shall be rendered null and void.

Cure Provision

Notwithstanding the foregoing, the Manager shall have the right to prevent termination of this Agreement by the Owner pursuant to
this Section by payment to the Owner, prior to the effective date of termination specified in the Owner's notice of termination, of that
amount for the second such Contract Year (i), in the case of clause (a), which is necessary to increase Income Before Fixed Charges
for the Hotel to that level which, when divided by the Revenue for the Contract Year in question, produces a ratio equal to 90 percent
of the average ratio of Income Before Fixed Charges to the Revenue for the Peer Group for the same period, and (ii), in the case of
clause (b), which is necessary to increase gross rooms revenues for the Hotel to such a level as to enable the REVPAR for the
Contract Year in question to be equal to the REVPAR for the Peer Group for the same period. Should the Hotel not meet both of the
foregoing tests for the second Contract Year in question, then the amount required to be paid by the Manager to prevent termination
hereunder shall be the greater amount required to be paid under clause (i) or (ii) above. Should the Manager exercise such right to
prevent termination, the Owner shall not have the right to terminate this Agreement pursuant to this Section for the Contract Year in
question, and the Owner's notice of termination shall be deemed withdrawn, provided that such payment shall not waive any future
right of the Owner under this Section to terminate this Agreement. In no event may the Manager exercise its right to prevent
termination as set forth herein on more than three separate occasions during the term of this Agreement nor more than once every
four Contract Years unless the Owner shall have previously waived such prohibition in writing. - J.B.
Jonathan Berger, J.D., now a partner in the New York-based law firm of Seward and Kissel, was formerly Hilton International's senior
development officer.

Copyright: COPYRIGHT 1997 Sage Publications, Inc.

http://www.sagepub.com
Cita de fuente (MLA 8)
Berger, Jonathan. "Applying performance tests in hotel management agreements." Cornell Hotel & Restaurant Administration
Quarterly, vol. 38, no. 2, Apr. 1997, p. 25+. Gale Academic OneFile,
link.gale.com/apps/doc/A19618343/AONE?u=univcv&sid=bookmark-AONE&xid=f1d967e5. Accessed 5 June 2021.
Número de documento de Gale: GALE|A19618343