Hotel Operating Agreements: Lease, Management and Franchise

How to Choose the Right Model Based on the Asset Strategy

When deciding how to operate a hotel, choosing the right contractual structure is not merely a legal matter — it is a strategic one. Each model implies a different allocation of risk, control and profit potential, and there is no universal solution that fits every asset.

In the hospitality industry, the three most common structures are the lease agreement, the hotel management agreement (HMA) and the franchise agreement. Understanding their differences allows owners and investors to make decisions aligned with their financial objectives, investment horizon and risk tolerance.

Rather than determining which model is better, the key is to identify which model best fits the asset and the owner’s profile.

Types of Operating Agreements in the Hospitality Sector

Before analyzing their implications, let us briefly review the most commonly used structures.

Lease AgreementThe owner grants the use of the hotel to an operator in exchange for a fixed or variable rent. The operator assumes day-to-day management and operational risk, while the owner receives predictable income.

Hotel Management Agreement (HMA)The owner retains ownership of the business and financial responsibility, while a professional operator manages the hotel. Revenues and results are shared according to an agreed structure.

Franchise AgreementThe owner or operator runs the hotel under a recognized brand, paying royalties and complying with the operational and commercial standards established by the brand.

In practice, many projects combine these models. For example, a hotel may operate under an international franchise while being managed by an independent operator.

Professionals reviewing hotel operating agreements and management strategies in a resort, evaluating lease and hotel management contract structures.

Lease Agreement: Stability and Predictability

The lease model is widely used, particularly in assets where the primary objective is to secure stable cash flow and reduce exposure to operational risk.

Advantages of a Lease

• Predictable income

• Limited involvement in day-to-day management

• Transfer of operational risk to the operator

• Contractual simplicity

Considerations of a Lease

• Limited participation in business growth

• Reduced strategic flexibility

• Dependence on the operator’s financial strength

• Less control over the asset’s positioning

A lease structure is typically suitable for owners with a more conservative or income-focused strategy, or for assets where income predictability is a priority.

Hotel Management Agreement (HMA): A Value Maximization Model

A management agreement represents a more dynamic structure in which the owner participates directly in the business results.

It is not necessarily safer or simpler, but it is often a value-maximization model, particularly when the asset has potential for growth, repositioning or operational improvement.

Advantages of an HMA

• Direct participation in business performance

• Strong alignment between strategy and operations

• Flexibility to adapt market positioning

• Potential for value creation over the medium and long term

Considerations of an HMA

• The owner assumes operational risk

• Active oversight and financial discipline are required

• The relationship with the operator is strategic in nature

This model is particularly relevant for:

• assets with growth potential

• repositioning projects

• long-term investment strategies

• owners with an entrepreneurial mindset

In these situations, the objective is not only to generate income, but to maximize the value of both the business and the real estate asset.

Brand, Operator and Operating Structure: Three Distinct Decisions

Beyond the contractual structure, there is a second strategic decision that is often misunderstood: the relationship between the brand and the operator.

In hotel operations, it is important to distinguish between three separate decisions:

• the contractual structure (lease or management)

• the brand under which the hotel operates

• the operator managing the asset

These decisions are related, but not equivalent.

Operating Under an Independent Brand or an International Brand

The choice of brand determines the asset’s market positioning, visibility and cost structure.

A hotel may operate:

• under the property’s own brand

• under an international brand through a franchise

• within a collection or soft brand

• or without a visible brand

The decision depends on the market segment, destination and asset strategy. In some cases, an international brand provides distribution and recognition; in others, the hotel’s own identity may be a stronger differentiating factor.

White-Label Operator: Separation Between Management and Brand

A white-label operator is a manager that operates the hotel without imposing its own commercial brand, allowing the property to operate under the brand that best fits its strategy.

The operator may manage the hotel under different brand configurations, including:

• the property’s own brand

• an international brand through a franchise agreement

• a collection or soft brand

• or without a visible brand

What matters is not the presence of a brand, but the separation between operational management and the commercial identity of the asset.

This approach allows owners to:

• maintain strategic flexibility

• preserve the long-term value of the asset

• facilitate future operator transitions

• adapt positioning to market conditions

In practical terms:

Under a management agreement (HMA), the operator runs the hotel; the owner decides the brand.

International Franchise: How the Contractual Structure Changes

When an international brand is introduced, the contractual structure depends on the chosen operating model.

Under a Hotel Management Agreement (HMA)

The franchise agreement is signed between the brand and the property.

This implies:

• a direct relationship between the brand and the owner

• greater strategic control over the asset

• brand continuity even if the operator changes

Under a Lease Agreement

The franchise agreement is signed between the brand and the tenant (operator).

This means:

• the brand relationship depends on the operator

• the owner has no direct contractual relationship with the brand

• a change of operator may result in a change of brand

For this reason, the operating structure should always be analyzed together with the brand strategy.

Choosing the Right Model: It Depends on the Asset Strategy

The choice between a lease and a management agreement is not ideological — it is strategic.

Key variables typically include:

• owner profile

• investment horizon

• level of leverage

• asset potential

• risk tolerance

• exit strategy

A stabilized asset may fit well within a lease structure.An asset with growth potential may benefit from a management structure focused on performance optimization.

Both models are valid when aligned with the owner’s strategy.

The Contract Defines the Framework; Execution Defines the Outcome

A hotel’s profitability depends less on the contractual structure and more on the quality of operational execution.

Efficient operations require:

• financial discipline

• operational control

• a coherent commercial strategy

• a long-term vision

The contract sets the rules, but management creates value.

How Welvia Can Support Your Asset

At Welvia, we analyze each hotel as an independent business, aligning the operating structure with the owner’s objectives.

Our role can take different forms depending on the asset’s needs.

Operator. We assume full operational management of the hotel, optimizing performance and positioning.

White-Label Operator. We manage the hotel under the brand defined by the owner, whether it is an independent brand or an international franchise.

Independent Advisor. We assess contractual structures, operating models and brand strategies from an operational perspective.

Our approach does not start from a predefined model, but from the analysis of the asset, the market and the investor’s objectives.