How do hotel management agreements work, and what do they cost?

Host Hotels & Resorts describes the split in its fiscal 2025 10-K. The managers have sole responsibility and exclusive authority for day-to-day operation, including establishing room rates, securing reservations, procuring supplies and promoting the hotels, and the managers employ all managerial and other employees. Host, as owner, provides working capital, funds the cost of fixed asset supplies such as linen and china, and must provide funds when cash at the hotel is insufficient.^[1]

Pebblebrook Hotel Trust is blunter about the limits of ownership. It tells investors it does not have the authority to require a hotel to be operated in a particular manner or to govern any particular aspect of daily operations, such as setting room rates, and that it can seek redress only if a manager violates the contract.^[3]

A management agreement is a different contract from a franchise agreement. The franchise licenses the brand. The management agreement runs the building. One hotel can have both, with two different companies. The roles are laid out at What is the difference between a hotel owner, a franchisor and a management company?.

Host says its brand managers typically receive a base management fee that in most instances is a percentage, generally 2 to 3 percent, of annual gross revenues.^[1] Pebblebrook says its agreements generally provide for base fees between 1 percent and 4 percent of the hotel's revenues, or a fixed amount.^[3] RLJ Lodging Trust says each management company receives a base fee between 1.5 percent and 3.5 percent of hotel revenues. RLJ adds a second range that is easy to misread: agreements that include the benefits of a franchise agreement carry a base fee between 1.0 percent and 7.0 percent, because a brand that manages the hotel folds the franchise charge into the management fee.^[4]

The base is not always total revenue. Chatham Lodging Trust says its base management fees are calculated as a percentage of the hotel's gross room revenue.^[5] Summit Hotel Properties says its base fee is generally a percentage of total lodging property revenues, and that in some cases there are also monthly fees for accounting and shared services based on the number of guestrooms.^[6] Apple Hospitality likewise says its management fees generally include accounting fees and other fees for centralized services.^[2] When you compare two proposals, compare the base and the add-ons together.

No third-party management company publishes its fee schedule. These ranges are what six public owners chose to disclose, and a single-hotel owner should not assume the same terms are on offer.

Host describes the incentive fee as typically a percentage, generally 10 to 20 percent, of operating profit after the owner has received a priority return on its investment in the hotel.^[1] Pebblebrook gives a similar figure: generally 10 to 20 percent of net operating income above a specified return on project costs, or above set income thresholds, and it notes that some of its incentive fees are subject to a limit.^[3] Chatham's formula is 10 percent of the hotel's net operating income less fixed costs, base management fees and a specified return threshold, capped at 1 percent of gross hotel revenues.^[5]

The owner's priority return is the number to negotiate. Host explains that when it puts more money into a hotel, many of its agreements treat that funding as an increase to its investment, which raises the owner's priority and reduces the profit available for incentive fees.^[1] In plain terms, the hurdle should move up when the owner writes a check for a renovation.

In practice the incentive fee is often small. Chatham paid $9.9 million of management, revenue management and accounting fees in 2025, and only $0.1 million of that was incentive fees.^[5] Host reported that base fees rose $6 million and incentive fees rose $2 million within total management fees of $262 million.^[1]

Apple Hospitality says that as of December 31, 2025, approximately 81 percent of its 217 hotels operated under a variable management fee agreement with an average initial term of approximately one to two years. Under that structure the fee earned for each hotel is generally within a range of 2.5 percent to 3.5 percent of gross revenues, and the performance measures are based on financial and quality metrics. The company says it believes this aligns the manager's incentives better than a base-plus-incentive structure, which it describes as more common throughout the industry.^[2]

The short term matters as much as the fee. Apple Hospitality used 16 management companies at year-end and says it moved nine hotels to different managers during 2025.^[2] An owner with a one-year contract can replace an operator without paying to do it.

Host says the initial term of its management and operating agreements with brand owners ranges from 10 to 50 years, with renewal terms typically exercisable at the option of the manager, and that certain agreements condition renewal on meeting economic performance criteria. It says its agreements with independent managers typically have shorter initial terms, no renewal rights and more flexible termination rights.^[1]

The select-service REITs show the short end. Apple Hospitality says its management agreements generally provide for initial terms of one to 30 years.^[2] Summit says the remaining terms of its agreements range from month-to-month to eight years.^[6] Chatham's agreements with its manager have an initial term of five years and renew automatically for two five-year periods unless the manager gives notice.^[5] Pebblebrook says remaining terms are up to eight years without renewals and up to 27 years with them.^[3]

Host states the default for a brand-managed hotel: it is generally limited in its ability to sell unless the buyer assumes the management agreement and meets other conditions, including that the buyer is not a competitor of the manager. Host has negotiated special termination rights at certain hotels, and it explains why: brand affiliation may increase a hotel's value, but the ability to sell a property unencumbered by a management agreement can also increase the value for prospective purchasers.^[1]

The other REITs disclose what leaving costs. Pebblebrook says the majority of its agreements are terminable at will, some require a termination fee, some are terminable on a sale, and termination fees range from zero to up to three times the annual base and incentive management fees.^[3] RLJ says certain agreements let it terminate on a sale or for any reason on payment of a stipulated fee, and that if a manager terminates because of an owner default it may recover 2.5 times the prior fiscal year's base and incentive fees as liquidated damages.^[4] Chatham can terminate on the sale of any hotel for no fee with six months' advance notice.^[5] Summit recorded a termination fee of approximately $0.9 million in 2025 for moving hotels between managers.^[6]

Most agreements also have a performance test. Host says its rights typically arise when the manager fails both a threshold return on the owner's investment and a RevPAR test against competing hotels over two consecutive years, and that the manager can usually cure by paying the shortfall.^[1] How an encumbered hotel changes the buyer pool is covered at What do buyers look for when buying a hotel?.

Host says it has certain approval rights over budgets, capital expenditures, significant leases and contractual commitments. Its managers prepare an annual budget for furniture, fixtures and equipment and routine repairs, subject to Host's review and approval, and a specified percentage of gross revenues, typically 4 to 5 percent, is deposited into a reserve account in the owner's name to pay for it.^[1] Pebblebrook says it keeps approval rights over capital investments as part of the annual budget process, and that under certain agreements it approves the hiring of key executive management at the hotel.^[3]

A franchised hotel has a third party at the table. Hilton's 2026 Hampton franchise disclosure document says the hotel must be operated by the franchisee or by a management company Hilton has approved, and that Hilton may refuse a manager it considers inexperienced or unqualified.^[7] A first-time owner usually satisfies the brand by hiring an approved manager, which is covered at How do I buy my first hotel with no hotel experience?. Read the agreement with a hospitality attorney before you sign it. This page explains public filings and is not legal advice.

The Uniform System of Accounts for the Lodging Industry puts management fees on their own schedule, base and incentive, below gross operating profit and above non-operating expenses such as property taxes and insurance.^[9] A buyer or lender who sees a statement with no management fee will add one back before capitalizing the income, which is why an owner-operated hotel's broker opinion of value usually shows a lower income figure than the owner's own statement. The method is at Walk me through the math on valuing a select-service hotel.

Public REITs cannot avoid the fee. The tax code lets a REIT lease a hotel to its taxable subsidiary only if an eligible independent contractor operates it, so every hotel REIT pays an outside manager.^[8] A private owner has the choice, but the debt market does not give credit for it. As of September 17, 2026, the 10-year Treasury is 4.94 percent and SOFR is 3.85 percent, and lenders do not publish the spreads or coverage tests they apply on top.^[10] Financing starts at How does hotel financing work, and what does it cost right now?, and a sale starts at What is involved in selling a hotel?.

Guide

How does the hotel business work?

Other questions in this guide

• What is the difference between a hotel owner, a franchisor and a management company?
• What does it cost to operate a hotel?
• How do hotel REITs work, and what do their filings tell a private owner?
• How do hotels make money?

Terms defined in the glossary

• Gross Operating Profit (GOP)
• Net Operating Income (NOI)
• FF&E Reserve
• Hotel Franchise Agreement

Our own data

• Matthews Hotel Markets rate sheet
• Hotel value estimator
• Hotel financing statistics