Management Agreement

A Management Agreement in the United States records the obligations the parties accept and the terms governing their arrangement.

The legal framework governing management agreements in the United States is general contract law — the Restatement (Second) of Contracts — supplemented by the law of agency where the manager is authorized to bind the owner to third-party commitments. Under the Restatement (Third) of Agency, a manager acting within the scope of the authority granted in the management agreement is an agent of the owner, and the owner is bound by the manager's acts and liable to third parties for the manager's conduct within the scope of that authority. This principal-agent relationship gives rise to fiduciary duties owed by the manager to the owner under agency law — including the duty of loyalty, the duty to act within the scope of authority, and the duty to keep accounts — unless those duties are expressly modified or waived in the management agreement.

Hotel management agreements are governed by a specialized body of case law and industry practice developed by major hotel brands including Marriott International, Hilton Hotels & Resorts, InterContinental Hotels Group (IHG), Hyatt Hotels Corporation, and Wyndham Hotels & Resorts. Hotel management agreement disputes — particularly disputes over performance termination rights and termination fees — have produced a significant body of litigation in federal and state courts and in American Arbitration Association (AAA) proceedings. The Hotel Management Agreement Research published by the Cornell Hotel and Restaurant Administration Quarterly and NYU's Tisch Center for Hospitality is a primary reference for industry benchmarks.

Real estate property management agreements are governed by state real estate licensing laws — most states require property managers who lease or rent property on behalf of others to hold a real estate broker's license or property manager's license issued by the state real estate commission. The National Association of Residential Property Managers (NARPM) and the Institute of Real Estate Management (IREM) publish professional standards for property management contracts and designate Certified Property Managers (CPMs) who have demonstrated professional competency.

Talent management agreements for artists, musicians, and athletes are governed by state talent agency laws in states including California (Talent Agencies Act, Cal. Lab. Code §§ 1700–1700.47) and New York (General Business Law § 171 et seq.), which require talent agents who solicit employment for artists to be licensed. Personal managers who advise clients on career strategy without directly soliciting employment are generally exempt from talent agency licensing requirements but may still enter into written management agreements governing their compensation and duties.

A US Management Agreement is needed whenever an owner of a business, real estate asset, investment portfolio, or creative enterprise engages a professional manager to operate the asset on the owner's behalf and requires a written contract that defines the manager's authority, compensation, performance standards, and termination rights.

Hotel owners — including real estate private equity firms, hotel REITs, and individual property investors — who engage national hotel management companies to operate their properties under brand flags such as Marriott, Hilton, Hyatt, IHG, and Wyndham require Hotel Management Agreements that specify the management fee structure (base fee plus incentive fee), the performance test triggers, the owner's priority return threshold, the owner's approval rights over capital expenditures and key personnel, and the termination rights including performance cure periods and termination fees.

Real estate investors — including individual landlords with portfolios of 10 or more units, real estate limited partnerships, and real estate investment trusts — who engage residential or commercial property management companies such as Greystar Real Estate Partners, Lincoln Property Company, CBRE, JLL, and regional property management firms to manage their properties require Property Management Agreements that specify the management fee (as a percentage of collected rent), leasing commissions, maintenance and repair authority, rent collection procedures, financial reporting requirements, and the owner's approval threshold for expenditures.

Closely held businesses and limited liability companies whose founding members lack operational management expertise, or who are investors rather than operators, engage outside management companies or professional executives under Management Agreements that define the manager's scope of authority (operational decisions within an approved budget vs. strategic decisions requiring member approval), the management fee structure, the performance metrics triggering bonuses or termination, and the non-competition and non-solicitation obligations upon departure.

Musicians, athletes, authors, and entertainers working with personal managers and business managers — who advise clients on career strategy, financial management, brand endorsements, and business investments — use Talent Management Agreements that specify the manager's commission rate (typically 10% to 20% of gross earnings from engagements made during the management term, and in some cases for a defined period after termination on deals the manager procured), the scope of the manager's authority to act on the client's behalf, and the duration and termination rights.

Continuing care retirement communities (CCRCs) and senior living operators managed by third-party senior housing management companies such as Sunrise Senior Living, Atria Senior Living, Erickson Senior Living, and Five Star Senior Living under management agreements with the property-owning entities require Management Agreements that address the specific regulatory framework for licensed senior care facilities under state health facility licensure laws.

A professionally drafted US Management Agreement must contain the following essential provisions to define the manager's authority, protect the owner's interests, align compensation with performance, and provide clear termination rights.

The scope of authority clause is the most operationally significant provision. The agreement must precisely define: (1) what decisions the manager may make unilaterally within the ordinary course of business (hiring and managing day-to-day staff within approved headcount, making expenditures within the approved operating budget, entering vendor contracts below a specified dollar threshold, implementing day-to-day operational policies); and (2) what decisions require prior written approval from the owner (capital expenditures above a stated threshold, entering leases or contracts exceeding a specified term or value, initiating or settling litigation, borrowing money or pledging assets, hiring or terminating senior management above a certain compensation level, and making strategic decisions affecting the core business). The agreement should also specify what documents and contracts the manager has authority to execute on the owner's behalf and whether the manager is authorized to represent the owner before government agencies or regulatory bodies.

The management fee and compensation clause must specify the fee structure in detail: whether the fee is a flat monthly retainer, a percentage of revenue (gross or net), a percentage of operating profit (GOP or EBITDA), a performance-based incentive fee, or a combination. Hotel management agreements typically combine a base management fee (1% to 3% of gross revenues) with an incentive management fee (8% to 12% of gross operating profit above an owner-priority return threshold). Property management agreements typically charge 6% to 12% of collected gross rent for residential properties and 1% to 3% for commercial properties. The agreement must also specify how the manager's expenses are handled — whether reimbursed at cost, subject to a markup, or included in the management fee — and the owner's approval threshold for expense commitments.

The performance standards and reporting clause must define the metrics by which the manager's performance will be measured, the frequency and format of financial and operational reporting, and the owner's rights to audit the manager's books and records. For hotel management agreements, performance tests — typically testing whether the hotel achieves a minimum GOP or RevPAR index relative to a competitive set — are a standard feature that triggers the owner's right to terminate if performance falls below the test level for two or more consecutive test periods.

The term and termination clause must specify the initial management term (typically 1 to 3 years for business management; 10 to 30 years for hotel management), renewal options, and each party's termination rights. Termination for cause — upon a material breach after written notice and a cure period of typically 30 days — should be available to both parties. Termination without cause — for convenience — is common in shorter-term business management agreements but heavily negotiated in long-term hotel agreements, where the manager typically requires a substantial termination fee (1 to 3 years of management fees) for convenience terminations. Performance-based termination — where the owner may terminate without a fee if the manager fails performance tests — is a critical owner protection in hotel management agreements.

The fiduciary duties and conflicts of interest clause must address whether the manager owes fiduciary duties to the owner under general agency law and the Restatement (Third) of Agency, or whether the parties have agreed to a modified standard of care (typically 'commercially reasonable care and skill consistent with the standards of the [industry]'). The clause must require the manager to disclose all conflicts of interest — including situations where the manager or its affiliates have financial interests in vendors, contractors, or competitors — and to obtain the owner's informed written consent before proceeding on any conflicted matter.

The indemnification and insurance clause must specify: (1) the owner's indemnification of the manager for liabilities incurred in the authorized exercise of the manager's authority; (2) the manager's indemnification of the owner for liabilities arising from the manager's gross negligence, willful misconduct, or unauthorized acts; and (3) the required insurance coverages (commercial general liability, professional liability/errors and omissions, employment practices liability, directors and officers liability, and property/casualty insurance on managed assets) with minimum policy limits.