Buying A Hotel - The Hotel Purchase Agreement Documentation And Process

Hotel purchase and sale transactions: State-of-the-art procedures for all the key components of the deal.

With the perspective gained from more than $60 billion of hotel transactions over 25 years, the JMBM Global Hospitality Group® has developed state-of-the-art knowledge and procedures to facilitate the purchase and sale of hotels all over the world, whether the transaction involves a portfolio of hotel properties, iconic landmark hotels or single hotels.

In this article, we will share some of our hotel-specific insights concerning the key labor and employment issues that the seller and buyer should address as part of their negotiation of the hotel purchase and sale agreement. We will also discuss some of the important decisions that the hotel buyer must make with regard to hotel employees. In addition, we will highlight some of the special issues that will apply to any sale of a hotel that has a unionized workforce in place at the time of the transaction.

The first thing you need to know: Who Is the "employer"?

Is the hotel owner or hotel operator the "employer" of the workers at the hotel. Where the hotel is managed by anyone other than the owner, the answer will usually be in the hotel management agreement. If the seller is the employer, then the employment issues can be worked out between the seller and the purchaser in the purchase agreement. If the hotel operator is the employer, the buyer will also need to work with the operator on employment termination and transfer matters.

Because of the WARN Act notification requirements (discussed further below), the seller and buyer will want to make sure that these issues are decided more than 60 days prior to the intended effective date of the transaction.

A key decision for the buyer: Who should be the employer after the closing?

Outside the U.S., the hotel owner is usually the employer of all hotel workers. However, in the U.S., the hotel operator is probably most frequently designated as the employer. Some hotel owners believe that it is always better to have the hotel operator be the employer of the hotel employees, because the operator has labor experts necessary to handle employment matters and the owner does not. Some owners also believe that if the hotel operator is the employer, then the owner will not be liable for wage and hour claims, harassment, discrimination and other labor law violations at the hotel.

It is often a surprise to the owner to find out that these assumptions may be wrong. Under many state laws, if the hotel operator violates labor laws, courts have ruled that a business owner may be a "joint employer" with a third party operator of the business, and that both the owner and the operator are jointly and...