How to Get Out of a Hotel Management Contract and What Owners Should Know First

If you are unhappy with your hotel’s performance, communication, or operating results, it is natural to start asking whether you can change management companies.

That usually leads to the harder question:
Can I get out of my hotel management contract?

Hotel management agreements are legal contracts, and exiting them is rarely simple. That does not mean owners are stuck, but it does mean you need to understand what rights you may have and what risks you may face before taking action.

This guide explains how hotel management contracts work, what termination options may exist, and what owners should evaluate before trying to exit an agreement.

What Is a Hotel Management Contract?

A hotel management contract gives a third party company the authority to operate the hotel on behalf of the owner.

These agreements typically grant the operator control over:

• Hiring and supervision of staff

• Operating procedures and service standards

• Revenue management and pricing

• Sales and marketing coordination

• Vendor contracts and purchasing

In exchange, the management company is paid:

• A base management fee, usually a percentage of gross revenue

• Often an incentive fee tied to profitability or performance benchmarks

Contract lengths can range from a few years to 10, 15, or even 20 years depending on the deal structure, whether the operator invested capital, or whether the contract was tied to development or financing.

Why Owners Want to Change Management Companies

Most owners do not look to terminate management agreements without reason.

Common issues include:

• Declining financial performance

• Poor communication or delayed reporting

• High employee turnover

• Weak group sales or local marketing

• Lack of cost controls

• Misalignment with ownership strategy

In many cases, owners are not just frustrated. They are concerned about long term asset value and future exit potential.

Can You Terminate a Hotel Management Contract Early?

There is no standard answer. Termination rights depend entirely on what is written in your specific contract.

Unlike some commercial leases, hotel management agreements are highly customized. Courts generally enforce them as written, which means your rights are limited to what the contract allows.

Legal analysis from hospitality law firms confirms that termination disputes often hinge on strict contract interpretation, not general dissatisfaction with performance.

That is why legal review of the actual contract is essential before taking any steps toward termination.

Common Termination Clauses in Hotel Management Agreements

While contracts vary widely, many include some form of the following provisions.

Termination for Cause

Most agreements allow termination if the operator commits a material breach of contract.

This can include:

• Failure to maintain required licenses or permits

• Serious legal or regulatory violations

• Fraud, misuse of funds, or accounting violations

• Failure to meet basic operational obligations

These clauses usually require:

• Written notice of default

• A cure period allowing the operator time to fix the issue

If the operator cures the breach within the allowed time, termination may no longer be permitted under that clause.

Performance Tests

Some management contracts include performance benchmarks that give owners termination rights if results fall below agreed thresholds.

These benchmarks may be based on:

• RevPAR index compared to competitive set

• Operating profit margins

• Revenue growth metrics

However, performance tests often include:

• Long measurement periods

• Market condition adjustments

• Operator cure rights, such as additional investment or staffing

Law firms that work on hotel transactions frequently note that performance tests are helpful but can be difficult to trigger in practice.

Owners should not assume poor performance alone automatically allows termination.

Termination on Sale or Change of Control

Some contracts allow termination if:

• The property is sold

• Ownership structure changes significantly

However, many agreements allow the management contract to transfer to the buyer, meaning the operator remains in place even after the sale.

This can affect:

• Property value

• Buyer interest

• Financing terms

Owners planning to sell should review whether the management agreement limits exit flexibility.

Termination Without Cause

Some contracts allow termination without cause, but almost always with financial penalties.

These may include:

• Liquidated damages

• Payment of remaining management fees

• Reimbursement of unamortized investments

These payouts can be substantial and should be modeled carefully before choosing this option.

What Owners Should Do Before Attempting Termination

Before sending any notice or escalating disputes, owners should take several practical steps.

Step 1: Have the Contract Reviewed by Hospitality Counsel

Hotel management agreements are specialized contracts. General business attorneys may miss industry specific provisions.

Owners should seek attorneys with hospitality transaction experience who can identify:

• Actual termination rights

• Performance test triggers

• Notice requirements

• Potential financial exposure

Step 2: Document Operational Problems

If you believe the operator is failing to meet contractual obligations, begin documenting:

• Financial underperformance

• Staffing and service issues

• Missed reporting obligations

• Contractual non compliance

Documentation matters if disputes escalate to formal negotiations or legal action.

Step 3: Evaluate Transition Risks

Changing management companies affects:

• Staff stability

• Guest experience

• Brand compliance

• Reservation systems

• Accounting and payroll

Poorly planned transitions can create short term revenue drops even if long term performance improves.

Step 4: Begin Conversations With Replacement Operators

Many owners speak with new management companies before formally exiting the current agreement.

This allows for:

• Transition planning

• Due diligence on operating approach

• Staffing continuity strategies

A management change should be treated like a business restructuring, not just a vendor switch.

How Franchise Agreements Can Complicate Management Changes

If your hotel is flagged under a national brand, you likely have:

• A franchise agreement with the brand

• A separate management agreement with the operator

Ending the management agreement does not end franchise obligations.

In many cases:

• The brand must approve the new management company

• Brand standards and fees remain unchanged

This means owners must evaluate both contracts together when planning a transition.

Legal commentary on franchise and management agreement overlap highlights how exit strategies must consider both documents.

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When Repositioning May Be Part of the Solution

Sometimes performance issues are not only about management.

They may also relate to:

• Outdated positioning

• Poor brand fit for the market

• Amenities that no longer match guest demand

In these cases, owners may consider:

• Brand conversion

• Market repositioning

• Renovation paired with management change

These strategies usually involve coordination between:

• Legal counsel

• Lenders

• Brand representatives

• New operating partners

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Hotel Management for Flagged and Independent Properties

Some management companies specialize only in branded hotels or only in independent properties. Others operate across both models.

Embergrove Hospitality Group provides full-service hotel management for both flagged and independent hotels, with operations rooted in Midwest markets. This allows owners to work with an operator familiar with:

• Brand compliance requirements

• Regional demand patterns

• Group and leisure driven markets

• Staffing challenges common to Midwest locations

If you are evaluating operating partners as part of a management change or repositioning strategy, you can learn more about Embergrove’s
hotel management services here.

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Considering a Regional Brand as a Repositioning Option

For some Midwest markets, national franchise models may not align well with local demand drivers.

In those cases, owners may explore regional hospitality concepts that are designed around:

• Drive markets

• Group travel

• Leisure focused stays

Through Embergrove Hospitality Group, owners can also explore development or conversion under the Stoney Creek Hotel brand, which is supported by full service management and designed for Midwest travel patterns.

Key Takeaways for Owners

Getting out of a hotel management contract is possible in some cases, but it is rarely simple.

Owners should remember:

• Termination rights depend on contract language

• Legal review is essential

• Performance documentation matters

• Transitions carry operational risk

• Brand and management agreements must be evaluated together

With careful legal and operational planning, many owners successfully change management companies and improve long term asset performance.

Next Steps

If you are:

• Considering changing hotel operators

• Planning a repositioning strategy

• Evaluating brand and management options

the first step is understanding both your contractual position and your operational alternatives.

You can start by learning more about Embergrove’s hotel management services here.

or exploring opportunities to reposition or develop under the Stoney Creek Hotel brand.

Both begin with an early conversation focused on market fit, operating strategy, and long term asset performance.