The Tale of an Ousted Hotel Manager - Understanding the Mal-Alignment of Interests of Hotel Owners and Hotel Managers

Posted by Tara Gorman on May 09, 2012

The facts of the Turnberry Case are more like something we’d see in a James Bond movie than in real life. But then again, fact is stranger than fiction. In real life, can a hotel manager be ousted from a hotel without notice and cure - even with a carefully crafted hotel management agreement in place?

Our Greenberg Traurig colleague Michael Sullivan discusses what it all means in the Hotel Business Review journal.

 

 

Rethinking the Membership Sell List

Posted by Glenn Gerena on April 16, 2012

How does a club with refundable memberships avoid (in the case of a new club) or deal with (in the case of an existing club) the problem of having to pay a resigned member more than what a new member pays when the membership is reissued?  This problem can arise when the membership price falls or if the club allows new members to pay their joining payment in installments.  A club could face severe financial consequences if it regularly must pay to resigned members more than it takes in.

The club can charge a transfer fee or increase the transfer fee, reducing the amount that a club pays the member after he or she resigns.  However, in the case of an existing club that already has members whose refund rights are grandfathered in, the benefits of this prospective change for new members will take time to be realized, as most new members will not resign for several years.

Instead of reducing the refund amount for new members, a club can deal with the problem with its club document reissuance provision, which determines when a refund to a resigned member must be paid.  The club membership documents can require payment to a resigned member only after a new member has paid his or her full membership joining payment.   Therefore, if the new member finances the membership purchase, the new membership is not counted as a sale until the last installment is paid, which could take years.

Instead of the resigned members having to wait years for new members to pay their installments, the club can  adopt the "funnel concept" for reissuance of resigned memberships.  Under the funnel concept, resigned memberships are reissued based on dollars received rather than sales.  Traditional reissuance of resigned memberships is on a  "1 in 4" basis (i.e. the club must pay a refund to a resigned member after four membership sales).   Under the alternative funnel concept, the club pays a refund to a resigned member when it receives membership proceeds equal to four full joining payments, not four membership sales.  For example, if the current joining payment is $10,000, the club would pay a refund to a resigned member when the club receives $40,000 in membership proceeds.  Therefore, if the club is offering membership financing and new members are paying the membership joining payment in $2,500 installments, the club would not be required to pay the refund to a resigned member until it receives 16 $2,500 installments (16 X $2,500 = $40,000), whether they be first installments from new members or subsequent installments from prior membership sales.

If the club is amending a reissuance provision to implement one of these options, the club and its legal counsel must consider the club's ability to adopt such amendment under the membership documents and court decisions. 

Delaying the Compliance Date for Swimming Pool Lift Requirements

Posted by Tara Gorman on April 02, 2012

Authored by Robert S. Fine, Esq.

On March 15, 2012, the Attorney General signed a final rule extending the date for compliance with the ADA’s new accessibility to swimming pool requirements (e.g., pool lifts) sixty days to May 21, 2012.  Shortly thereafter, the Department issued a Notice of Proposed Rulemaking to make the extension a total of 180 days which would bring the compliance date to September 11, 2012.  Many in the hotel industry were hoping that the new rulemaking would result in less onerous requirements, especially for existing swimming pools.

While no one can truly predict the outcome of federal rulemaking, based on the text of the NPRM, it appears as though the DOJ is not considering any changes to the requirements, only an extension of the date. If this turns out to be the case, then what the DOJ is doing is effectively giving the hotel industry a free pass from the pool lift requirement for this summer’s swimming season, and through next Memorial Day for those parts of the country where swimming pools close on Labor Day and don’t reopen until then.

Since it is possible, even if unlikely, that the DOJ will consider comments on the substantive requirements for existing swimming pools, you should take the opportunity to submit any written comments you may have on this subject on or before April 4, 2012.  You can  find the text of the proposed rulemaking at  http://www.ada.gov/regs2010/ADAregs2012/pools_2012_nprm_final.htm and submit your comments at http://www.regulations.gov/#!submitComment;D=DOJ-CRT-2012-0006-0001.

Time is on Your Side - ADA Pool Lift Regulations Suspended for 60 Days for Existing Pools

Posted by Tara Gorman on March 16, 2012

The hard deadline of March 15, 2012, for compliance with the ADA Standards for Accessible Design with regard to existing swimming pools, wading pools and spas has been suspended for 60 days.  Attorney General Eric Holder extended the date for compliance with Sections 242 and 1009 of the ADA Standards for Accessible Design until May 15, 2012, according to an official statement from the Department of Justice.  Let your voice be heard.  Attorney General Eric Holder is seeking public comment on whether more time is needed to allow pool owners and operators to comply with the ADA pool lift regulations.  The official statement from the Department of Justice is below:

On Thursday, March 15, 2012, Attorney General Eric Holder signed a final rule extending the date for compliance with sections 242 and 1009 of the 2010 Americans with Disabilities Act (ADA) Standards for Accessible Design as it relates to the provision of accessible entry and exit to existing swimming pools, wading pools, and spas for a period of 60 days after the publication of the rule in the Federal Register. On that same day, the Attorney General also signed a Notice of Proposed Rulemaking (NPRM) seeking public comment on whether a longer period of time would be appropriate to allow pool owners and operators to meet their compliance obligations. Specifically, the NPRM proposes a 180-day extension of the deadline. Comments on the NPRM will be accepted for 15 days after publication in the Federal Register.

Immediate 60-day Extension of Compliance Date for Existing

Is a Resigned Member Still a Member?

Posted by Glenn Gerena on March 12, 2012

Club management often assumes that once a member resigns, he or she is no longer a member.  The answer is not always so simple.  Club membership documents rarely answer this question directly.

Club membership documents usually require a resigned member to continue to pay dues after resignation for some period of time, whether it be to the end of the membership year, for 12 or 24 months, or, in the case of a refundable membership, until the resigned membership is reissued by the club to a new member.  The membership documents also often (but not always) permit the resigned member facilities use privileges as long as the member continues to pay dues.  Some resigned members continue to pay dues even after their dues obligation ceases, with the consent of the club, in order to continue facilities use privileges.

When members vote in an election or on a matter, club management and the club board must determine whether resigned members may vote. Club bylaws often are silent on whether a resigned member who continues to pay dues may vote. If the membership documents give a resigned dues paying member "use privileges," this likely is not sufficient to give the member voting rights. However, if the membership documents state that a resigned member has "membership privileges" as long as the member pays dues, then the resigned member has a good argument that he or she has voting rights, not solely facilities use privileges.

A related question is whether a resigned membership is outstanding for purposes of a membership cap or determination of how many memberships have been issued.  In the case of a refundable membership, a membership, once issued, is always outstanding because it counts as a membership for purposes of the membership cap. Therefore, a resigned membership is outstanding for such purpose even if the member has no membership privileges. In the case of a nonrefundable membership, the club probably should not count a resigned non-dues paying membership as outstanding, because it gets "turned back" to the club.

Even though club management and active club members generally do not consider resigned members to be real members, the resigned members' status and the treatment of resigned memberships typically depend on review of club membership documents and whether the membership is refundable.

For Want of a Table a Bar was Lost - The Noise Over ADA Pool Lifts is a Distraction from the More Time Sensitive Issues

Posted by Tara Gorman on March 09, 2012

Authored by Robert S. Fine, Esq.

Next week, on March 15, 2012, the original (1991) ADA Standards, commonly referred to as the ADAAG (ADA Accessibility Guidelines) will officially expire and be replaced by the 2010 ADA Standards.  The ADA regulations provide that elements of places of public accommodation that had requirements in the 1991 Standards, and that complied with to those requirements, will be safe-harbored (effectively grandfathered) from complying with the updated requirements unless or until such elements undergo alteration. Elements of public accommodations that did not have requirements in the 1991 Standards are not subject to the safe harbor and should comply with the 2010 Standards’ requirements as of March 15 (next Thursday).  One such non safe-harbored element -- which is grabbing national attention -- is swimming pools and the requirement to provide a lift or other accessible means of entry into pools.

In the clamor to either challenge or timely comply with the requirements for swimming pools, other, arguably more important issues (for some hotels) are being given less attention -- with potentially significant negative results. The requirement for pool lifts to be in place on March 15 will not change from March 14 to March 16. However, the requirements for accessible bars, and accessible hotel front desks will fundamentally change on March 15.

The requirements for food service counters and bars are as follows:

Where food or drink is served at counters exceeding 34 in (865 mm) in height for consumption by customers seated on stools or standing at the counter, a portion of the main counter which is 60 in (1525 mm) in length minimum shall be provided in compliance with [34” maximum counter height and 19” clear depth] or service shall be available at accessible tables within the same area.  

§ 5.2, 1991 ADA Standards.   On March 15, the allowance to substitute accessible tables in lieu of lowering a section of the bar will go away. Therefore, if a bar does not have an ADA-compliant lowered section  and does not have accessible table(s) within the same area before March 15, the exception will no longer be available; in order to comply with the ADA, a section of the bar would have to be lowered. This situation can be avoided if before March 15, 2012, a table or tables with a top height of 28 - 34 inches, knee space height of 27 inches minimum by 30 inches width, and minimum depth of 19 inches, is provided in the same area as the bar.  (Note that a 36 inch diameter square table with a pedestal will not meet this requirement).

Similarly, under the 1991 ADA Standards, a hotel registration counter must provide either:

  • a portion of the main counter which is a minimum of 36 in (915 mm) in length … with a maximum height of 36 in (915 mm); or
  • an auxiliary counter with a maximum height of 36 in (915 mm) in close proximity to the main counter …; or
  • equivalent facilitation … (e.g., at a hotel registration counter, equivalent facilitation might consist of: (1) provision of a folding shelf attached to the main counter on which an individual with a disability can write, and (2) use of the space on the side of the counter or at the concierge desk, for handing materials back and forth).

§ 7.2(2), 1991 ADA Standards.  Under the 2010 ADA Standards, the allowance of an auxiliary counter or use of a concierge desk in place of a lowered counter goes away. Similar to the situation with bars, in order to safe-harbor a hotel registration desk,  there must be an auxiliary counter or concierge desk meeting the requirements described above before March 15, 2012.

Once March 15, 2012 arrives, hotels can still provide a pool lift, but they will not be able to substitute a lowered bar section or hotel registration desk with an accessible table or concierge desk. So check your bars and desks and go furniture shopping if you need to now, because on March 15, it will be too late. Once you have an accessible table or concierge desk in place, take a date-stamped photograph (before March 15, 2012) to document that the table or desk was present and timely, in order to help defend any future challenge.

Enhancing Resort Profitability with a Membership Program

Posted by Glenn Gerena on February 07, 2012

A club membership program could be the "golden ticket" to enhancing a resort’s profitability.  It may provide a resort owner with:

  • Membership sales proceeds;
  • Stable source of operating revenue through annual dues;
  • Increased area resident usage of restaurants and other amenities; and
  • Member referrals to resort's accommodations for friends and family.

This enhanced profitability is often accomplished without significant investment in facilities, but rather with club members using excess capacity.  In addition, the resort can often service members primarily with existing management and accounting staff, so that the membership program does not add significantly to employment costs. The primary additional personnel are a membership director and an activities director, and possibly additional support staff if justified by membership revenue.

Resort management's primary concern with a club program is that member usage of amenities can lead to crowding, which adversely impacts guests.  However, member  usage and resort guest usage of amenities are often complementary.  Club members often play golf or use a spa earlier in the day than resort guests. The ideal situation is a resort that attracts primarily business clientele on weekdays for accommodations and working people for the club on weekends, or a resort whose rooms are filled on weekends attracting area retirees as members who use the club on weekdays. Capacity analysis should be undertaken for all amenities, reflecting peak usage periods to determine the ideal number of members.  Members' use privileges and benefits can be tailored to encourage member usage of underutilized amenities and to discourage usage during peak usage periods of amenities that have limited excess capacity.

The resort should not assume "we will build it, and they will come." A resort will not recoup marketing, membership document and membership office costs, let alone make a profit, unless the resort generates membership sales and dues. Therefore, a resort that is considering a membership program should research membership marketability for the area and retain knowledgeable professionals to develop, document and market the program.

As resort managers struggle to fill guest rooms, the key to profitability could be in the amenities, not the guest rooms.  The "golden ticket" could be a club membership program for a golf course, tennis courts, beach club and/or spa that previously added more to the expense than the revenue side of the profitability ledger

The Importance of Being Fair

Posted by Nelson Migdal on January 19, 2012

Many readers of our blog know that an opinion was recently issued in yet another hotel operator v. hotel owner dispute. The Sheraton v. Castillo  opinion, issued on November 18, 2011, is dense, very detailed and heavily fact dependent. One element of the court’s assessment of the relationship between the parties deserves special mention and should not be overlooked in our heavily legalistic business. That is the age old notion of good faith and fair dealing.  There are multiple occasions in the  court’s opinion where the  judge engages in a careful analysis of the facts of the case, opines that some event has or has not occurred or failed to occur, and then goes on to forgive or explain away the failure because the action that was taken by the other party was a violation of the obligation to exercise good faith and fair dealing.  The obligation to act in good faith and fairly is implied throughout the law.  Most states have developed their own interpretation of the concept through judicial opinions.  The concept is also found in the Uniform Commercial Code and various texts as applied to torts and contracts.  The point here is to remember that although the obligation to exercise good faith and fair dealing is not intended to, and should not be assumed to, alter specific provisions of a contract, such as a hotel management agreement, a party that ignores the manner in which it acts upon its contractual rights could find itself on the losing side of the argument.

Equity vs. Non-Equity Club Dynamics

Posted by Glenn Gerena on January 10, 2012

How will the Great Recession and changing club market conditions change a developer's decision about whether to structure a club as an equity (i.e., nonprofit member-owned) club vs. a non-equity (for profit) club?  The traditional view held that developers favor the equity club structure for high-end communities and the non-equity structure for more affordable housing communities, based on purchasers’ preferences. Owners of high-end residences were more likely to want to own their club than were owners of moderately priced residences.

Based on the tsunami of club closures, foreclosures and bankruptcies, a developer today will more likely want to structure the club so as not to own it on a long-term basis. Developers will not opt to create golf and club operating divisions as some large developers planned in the past.   

Although very few developers will want to own clubs, the residential purchaser market demand will continue to drive the developer's decision. The economy and changing market seem to have reinforced the traditional concept of high-end property owners favoring equity and middle and lower end owners favoring non-equity. Property owners with significant investment in their residential real estate fear that a closed or poorly operated and maintained club will undermine their investment, so they - more than ever - want to own and control their clubs. In the past, large residential developers with good reputations for the quality of their clubs were able to convince their high-end purchasers to buy into non-equity club communities.  High-end residential purchasers no longer want to depend on the developer to maintain club quality. Club members in some high-end communities have purchased their clubs (e.g., Amelia Island Club and the Club at Black Rock) or accelerated turnover (e.g., Grey Oaks Golf Club).

In contrast, property owners in middle and lower end communities seem to be more concerned that ownership of the club amenities will result in assessments for operating deficits and capital expenditures.  They don't want to own the club because they fear they can't afford to operate it. Members and property owners in some communities have voted down the opportunity to purchase their club (e.g., Reynolds Plantation, which has a wide mix of home values).

So, what can a developer do when it does not want to own the club, but its prospective purchasers do not want to own the club either?  Such developers can arrange for large, strongly capitalized, reputable club and golf managers to own and/or operate the club. 

It will be interesting to see if the traditional equity vs. non-equity club dichotomy continues to be reinforced or changes as the market evolves.

To Golf or Not to Golf? That is the Residential Developer Question

Posted by Glenn Gerena on December 01, 2011

Building a golf course was once a given in planning a medium to large high-end residential community.  As a result, many golf courses were built without regard to the economics of operating them.  The developers often assumed that the members would increase dues to cover costs and offer memberships to area residents outside the development if needed.  This assumption proved false, because dues increases can result in increased membership resignations and decreased membership sales and the market for area residents may be very competitive or too small.

A golf course should not be built — no matter how much it helps the marketing of residential property — unless a viable business plan is developed for the golf club, based on conservative, realistic assumptions. 

The developer should consider how important golf is to the particular target markets for the development.  If a golf club is not viable, the developer should consider adjusting the residential marketing plan to target purchasers for whom golf is not that important.  If golf is necessary or strongly advisable to make the residential product marketable, the developer needs to determine how to make the golf club viable, by either increasing revenue (such as by increasing dues from inception or planning more nonmember revenue sources) or reducing costs (such as by downsizing facilities and planning a golf course with lower maintenance costs).

A home in a high-end community without a golf course can be amenitized in other ways:

  • Preferred access arrangements at an area golf course, combined with implementing club-like programs at the golf course for the property owners;
  • Family-oriented facilities, with activities and programs;
  • Concierge and other services; and
  • Landscaping, wetlands, and open space equivalent to a golf course.

The question may not be "To golf or not to golf?"  The question may need to be restated as "How can golf work?" And if the answer is “It cannot,” then it becomes "Will non-golf amenities work?"