In recent years, projects managed by international operators such as Hilton, Accor, Marriott, and others have been actively developing in Uzbekistan. However, a successful partnership with a major brand requires meticulous legal preparation at all stages of the project—from construction to contract execution.
The legal issues involved in supporting hotel projects can be divided into two main areas:
- Issues related to the construction/renovation of the hotel itself;
- Issues of formalizing the relationship between the hotel owner and the hotel operator.
From a practical standpoint, it is advisable to address these two sets of issues not sequentially, but simultaneously. When attracting an international hotel operator, the design of the hotel should properly begin by taking into account the specific requirements of that brand. We will discuss this in more detail below.
Regarding the first set of issues, when building a hotel “from scratch,” it is always necessary to consider the nuances of urban planning regulations and the possibility of constructing a hotel with the intended parameters on the given land plot. In this regard, investors and hotel operators are advised to conduct a thorough legal analysis of the land plot before starting the project to avoid situations where the project cannot be completed according to the original concept.
The adaptation of existing buildings for use as hotels presents a separate set of challenges. Parts of such buildings may be owned by third parties, which raises issues concerning the use of common property and other specific legal and practical problems.
Projects where a hotel is planned to be located in or near a cultural heritage site/UNESCO World Heritage site require careful legal structuring. In such cases, additional measures must be taken to ensure the preservation of the cultural heritage site and to minimize the impact on nearby objects.
Regarding the second set of issues, there are several legal models commonly used in the market to mediate the relationship between the (future) owner of the hotel and the international hotel operator:
- Lease. The operator has maximum freedom in choosing its management strategy and leases the hotel from the owner, managing it independently. The operator bears all operational risks.
- Franchising. In its classic form, this model is the “reverse” of the lease model. The owner obtains the brand and access to booking systems but manages the property independently or through a local operator.
- Management Agreement. The operator provides hotel management services to the owner. Typically, in this model, the hotel staff are recruited by the operator but are formally employees of the owner. This model allows for risks to be distributed between the parties.
These legal models have their own specificities. Often, for complex reasons, a particular country has an established practice of using one model over the others.
Nevertheless, for each project, the legal model for engaging an operator should be chosen on an individual basis, including through an analysis of the following risks:
- Legal: Non-compliance of the land plot with urban planning norms; risks associated with working with cultural heritage sites; currency regulation and profit repatriation.
- Financial: Underestimation of CAPEX; inflated profitability expectations; dependence on state support and its timeliness.
- Operational: Term of brand licensing; staff shortages; non-compliance with brand standards; disagreements between the owner and the operator.
- Geopolitical: Potential impact of international sanctions and currency restrictions; dependence on tourist flows from specific countries.
The hotel owner must also understand that a crucial aspect of the relationship with an international hotel operator is the hotel’s compliance with the operator’s brand standards. Brand standards are a set of requirements set by the operator regarding the concept, design, premises, equipment, furnishings, and other parameters of the hotel that must be met for the operator to accept the hotel for management and/or grant the use of its brand.
International operators strive to improve the level of hotel services, so brand standards may be subject to changes during the term of the agreement between the owner and the operator, and such changes will need to be implemented.
Since the agreement between the owner and the operator is often signed for a long term (10-20 years), there are also a significant number of other complex issues that must be agreed upon between the owner and the operator.
Supporting hotel projects requires deep expertise at the intersection of various legal fields: real estate and construction, corporate law, intellectual property law, and others. Legal support in this area encompasses a wide range of aspects: working with owners and operators on issues arising during the implementation of a hotel construction project, hotel management issues, nuances of building placement on the land plot, relationships with contractors involved in construction, developing a suite of construction contracts, preparing hotel management agreements, and more. Our team possesses exceptional expertise in supporting hotel projects and working with international brands. We help owners understand the specifics of a foreign hotel operator, and we help foreign operators navigate the specifics of local legislation, enabling partners to implement their hotel project under the most comfortable conditions for them.
Material prepared by Arina Dovzhenko Partner and Head of Real Estate and Construction Practice at Nordic Star, and Madina Tursunova, Lawyer at TOPADVISOR.