by Kristina Fischer
As more and more hotels and resorts are being built as part of mixed-use developments, it is important to consider the driving force behind this trend and what contractual issues need to be addressed. Mixed-use developments can be defined as projects that combine different types of uses on one site, such as residential, office, retail, hospitality and entertainment uses, with a certain degree of physical, functional and operational integration which needs to be carefully planned.
Developers opt for mixed-use developments for differing reasons, including the large size of their plots of land, market demand, the spread of risk amongst the different components within a mixed-use development, synergies and interlinking of the various components in the business case and financial planning.
In the hospitality context, we often see residential components appended to an anchoring hotel component. The residential component can take the form of villas, condominiums or apartments with the final form depending on the development itself, the market and the legal structures in place. Real estate development is an expensive business and funding issues need to be considered. For example developing and maintaining a hotel for the longer term requires considerable resources offset by the continuous income stream from the hotel operations. One way of assisting with the funding issue of a large development is to selloff a component thus pre-sales of residences off the plan provide a basis of funding for both the residences and the remainder of the development. The advantage for the residences is the association with the hotel in their development. Thus it is important to ensure the correct choice of brand for the development.
In such instances the developer needs to consider if the residences should be branded, serviced by the hotel and/or placed into an optional or mandatory rental program whereby each participating residence is rented out by the hotel. Each process requires careful consideration and negotiation with the hotel brand to ensure a cohesive process is established. Documentation needs to reflect a clear understanding of the requirements of both parties and to ensure a smooth relationship going forward.
If residences are part of condominiums or housing developments, the management and maintenance of common areas, rules and regulations and the housing association / condominium juristic person need to be considered and appropriately addressed in the various agreements.
The agreements vary by operator but we would typically expect to have following agreements that would need to be negotiated.
- technical services agreement
- hotel management agreement
- residential management agreement
- rental pool agreement
- rules and regulations of the residences
- sale and purchase agreement of the residences
- license agreement in respect of the residences
- rules and regulations of the project
- project management agreement
Due to their complexity, mixed-use developments can seem quite daunting. However they continue to be successfully developed and they can be quite lucrative if carefully structured with properly negotiated contracts in place to support the structure and the correct hotel brand in place to support the overall positioning of the development.
Should you require any assistance with any component of your mixed-use development be it structuring, brand choice or your contracts Hotel Solutions Partnership has the resources to assist.