Buying or selling any type of operating business can be complicated, but hotel purchases and sales carry with them a unique set of considerations. One thing that makes these transactions complex is the number of different legal interests involved. The typical hotel purchase will include the transfer of real property, the transfer of the business itself with some or all of its financial assets and liabilities, and other property and equipment. Further, there may be franchise agreements in play.
In addition, there may be more than one seller involved. For example, the business itself may be a separate corporation from the one that owns the real estate. Although the hotel business, the hotel building, the hotel accounts and the hotel furnishings and decor are all operating as a unit, the parties will have to determine exactly what will and will not change hands, and under what terms.
Working with an attorney who is experienced in the purchase and sale of hotel businesses and properties can smooth the process, helping to ensure that all the important details are addressed.
Issues to Consider in Hotel Acquisitions and Dispositions
Not all the many issues to be considered when entering into a hotel sale transaction are legal issues. However, there is often a heavy overlap among legal, financial and business considerations. Since it is difficult to fully separate these issues, it is to your advantage to work with an attorney who understands the business and financial considerations as well as the legal ones.
Transfers in a Typical Hotel Purchase / Sale
Although every transaction is different, the assets and liabilities typically transferred or retained in a hotel sale include:
- Real estate
- Ownership of the corporation
- Furnishings and other equipment
- Inventory
- Accounts receivable
- Accounts payable
- Known and unknown liabilities
- Intellectual property such as logos and advertising slogans
In each case, the attorneys for the buyer and seller will negotiate regarding details of the transfer or retention of these and other assets and liabilities, including possible indemnification of one party by the other.
Contingencies in Hotel Sale Contracts
Many hotel purchase offers or letters of intent contain contingencies. One of the most common, which is also common in other deals involving the transfer of commercial real estate, relates to financing. However, there may be additional contingencies, including:
- Sale being conditioned on the outcome of inspections
- Sale being conditioned on key employees or outside managers remaining with the operation
- Less frequently, sale being contingent on some outside event that will impact the viability of the business
Hotel Purchase and Sale Agreements
The agreement to transfer ownership of a hotel may or may not commence with a letter of intent. Although the letter of intent is generally not legally binding, it may still be required under certain circumstances. Some common circumstances under which a letter of intent may be required include where an investor group’s guidelines require it and where it is necessary in order to secure financing. In most cases, a letter of intent will not be required, but can still be a helpful step in the complicated process of working out the details of the agreement.
Because of all the different types of property to be transferred or retained, all the possible contingencies, and the many areas in which due diligence is required, a purchase and sale agreement in a hotel transfer will typically be intricate and detailed.
Key issues to be addressed include:
- Property to be transferred
- Price
- Financing
- Tax issues
- Contingencies
- Indemnification
- Employee retention
- Anti-competitive provisions
Get the Right Help with Your Hotel Transfer
There is a lot to think about when you are buying or selling a hotel, which is why it is in your best interests to work with the right professionals from the beginning. In a transaction of this size and complexity, you can expect to require the assistance of those in several different professions. Some most common include:
- Brokers
- Appraisers
- Accountants
- Inspectors
- Business Consultants
You can also expect to hire outside help for a title search, property tax verification, and other measures intended to protect you from unexpected complications after the transaction.
The attorneys in our firm are experienced in handling hotel purchase and sale transactions and are accustomed to working closely with these and other professionals to ensure that all aspects of your transaction are fully covered. Rather than trying to sort out the complex details of a hotel acquisition or sale on your own and risking costly mistakes, contact us today to get a seasoned professional on your team.
