An Overview of Hotel Contracts in Iran
Hotel Contracts round about two main categories: statics and dynamics. Lease, maintenance and purchase fall into the first category, while the operation, management and franchise conform to the dynamic contracts.
Iran is one of the most prosperous and promising markets in tourism industry and even the long-term international conflicts failed to push it out of the league. One of the salient feature of this market is hostelry, and here we are going to examine all contractual tool boxes available for those who are interested to take the initiative and invest in a cheap and peaceful area, hundreds of miles far from the competitors.
Legalities of Hotel Contracts in Iran
As far as hotel contracts are concerned, there is no law limiting the scope or terms, and the contract will be subject to the general rules and principles of the Iranian code of civil Law. That being said, there is a number of tourism bylaws specifically applicable here and hotel managers are required to abide with them, and therefore it is advisable be considered when negotiating and signing related contracts. These bylaws are: the bylaw concerning establishing, completing, classification and pricing of tourist facilities, the guideline of tourist facilities classification, the bylaw concerning the pricing of water and power for national and global tourism, the code of architecture and construction of hotels, the executive guideline of room reservation.
Types of Hotel Contracts in Iran
When it comes to hostelry transactions, there is not any established form or sample of contracts. Of course, there is a variety of contractual tools regarding different function every contract has to deal with. In our view, hotel contracts round about two main categories: statics and dynamics. Lease, maintenance and purchase fall into the first category, while the operation, management and franchise conform to the dynamic contracts. More often than not, there is a combination of these forms as one contract may serve several purposes altogether. In the first step, we examine the static category, before we go to the more complicated area of operation and management.
Static Hotel Contracts
Static hotel contracts are specific, simple and straightforward, as they deal with certain and daily transactions like lease, maintenance and purchase. There are holding companies in Iran which are exclusively focused on hotel industry and could offer the investor a whole pack of necessary items to build and run a hotel. these companies are Parsian Hotels (pih.ir) and Mofid Hostelry Services (mofidhotels.com), to name but a few. It goes without saying that one can choose how to combine different contracts into one or stick to the old-school business rules and sign contracts with different providers.
Dynamic Hotel Contracts
Dynamic Hotel Contracts in Iran includes operation, management and franchise. These types of contracts are more complicated and make use of modern law possibilities. Two essential elements upon which these distinctions are made include real estate ownership and brand rights. The hostelry Holding Companies usually offer all services needed to accomplish all purposes one can pursue by the means of three categories of dynamic contracts.
Operation Hotel Contracts
in this type of hotel contracts, certain properties are relinquished to the administration of outside operators. There are two branches of these contracts: brand operation and independent Operation. Brand operation hotel contracts are the most popular type of hotel contracts worldwide and it is not uncommon for Iranian owners to conclude this type of contract with foreigners. In 2012, an Iranian company named Alborz-tat Construction Development signed a brand operation contract with Rotana Hotel Management Corporation (Ltd) with a life span of 15 years.
According to this contract, the owner benefits from the commercial brand of the operator. However, not all operators enjoy a shining brand in demand, and here comes the second branch of this type named independent operator contracts. In any case, all operators have specific operational duties and as their duties increase, this type of contract approaches the realm of management category explained in the next section.
Hotel Management Contracts
in this type of hotel contracts, the holder of real state, either the owner or lessee, gives the authority of running the hostelry business to professionals and instead gathers a solid portion of the benefits and also has the majority of risk to bear. Then her role is limited to investment on real estate. This type of hotel contract flops in the middle and could be close to the franchise or operation contracts, dependent on how much tasks has been entrusted with outsiders.
The rate of specificity and changing conditions of tourism industry are two elusive and misleading factors which should be meticulously negotiated. Hence, the most important side of this type is contractual balance. There is usually a base fee and incentive fee. The base fee is payable based on a certain percentage of the profit. The incentive fee is an accelerator which pushes the managers to attract guests as more as possible.
Franchise Hotel Contracts
In this type of contracts, brand holder simply gives owner the right to make use of her commercial brand. Periodical inspections come with the trade, and the brand holder agencies are to confirm the owner is performing according to the brand high standards. This type tends to combine with the operation contracts more than the management ones, as the philosophy of buying the privilege of using another hostelry brands is “not to give up the management”. However, as we mentioned before, the borders are not set in stone and there are management contracts by which the brand is also purchased under a separate provision. in a nutshell, the management and operation contracts could be interchangeable terms in some legal cultures.
Which Type of Hotel Contract is Suitable for Me
The typology of Hotel Contracts in Iran doesn’t digress from the common terms in European or American hostelry industry. It all depends on the scale of the business and the preferences of the hotel owner. If you want to scrutinize the legal core of hotel contracts in Iran, don’t hesitate to give us a call. We are available all weeks, all days and all hours around the clock.
