Hospitality Performance Tests In the Real World

Hotel management agreements often contain language permitting a hotel owner to terminate if the hotel’s performance fails to meet certain financial metrics. This provision, colloquially referred to as the “performance test,” is touted as a form of protection for owners by providing a right to terminate (or to receive a “cure payment”) if the hotel underperforms. But the reality is performance tests are generally structured to make them difficult, if not impossible, to fail, leaving hotel owners without the financial protection they thought they bargained for — or worse.

8 minute read December 01, 2024 at 12:07 AM
By
Todd E. Soloway , Bryan T. Mohler and Itai Y. Raz
Hospitality Performance Tests In the Real World

By Todd E. Soloway, Bryan T. Mohler and Itai Y. Raz

Hotel management agreements often contain language permitting a hotel owner to terminate if the hotel’s performance fails to meet certain financial metrics.

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