The Bench Top 10: Key Issues in Residential Branding Agreements for Mixed-Use Hotel Projects in the
With the recent increase in the number of mixed-use hotel projects in the region, we thought it would be an opportune moment to remind hotel owners of some of the key considerations when reviewing a residential branding agreement (RBA).
1. Extent of Licence: As with any intellectual property (IP) licence, one of the key concerns is whether the licence is wide enough for the proposed use. This should cover the marketing and sale of the residences, but also the use of the brand for the on-going management of the residences.
2. Right to Sub-License: Most hotel owners do not have the network to market/sell the residences themselves so will probably need the help of licensed real estate agents to market/sell on their behalf. The terms of the RBA will need to allow the use of the brand by such agents and in exchange the operator will normally require rights of approval over such agents.
3. Territory: Some operators will try and limit the licence of their brand to the country in which the residences are located or have a limited list of ‘permitted’ or ‘initial territories’ in which the residences can be marketed/sold. Any such restrictions (if agreed) will need to align with the proposed sale and marketing plan, including on-line marketing.
4. Sales Below Market Rate: Operators will normally try and impose a restriction on below market sales that attempt to avoid or reduce the payment of the branding fee. If this is agreed, it is obviously important to agree the price bands for the residences, any exclusions from this e.g. a certain number of residences sold within the group and the mechanism for any amendments to the agreed price list.
5. Payment of the Residential Branding Fee: A key area of discussion on the RBA is often around the milestone payments of the branding fee. Operators typically want as much paid up front as possible, whereas the owners would prefer to pay based on the milestones payments received by the individual purchasers. Also consider in what circumstances the fee will be refundable and whether the fee is payable in the case of purchaser default. The branding fee generally shouldn’t be payable again on any bona fide resale.
6. Approval of Documents: To ensure that the design, construction and sale process is not held up, owners may wish to argue for shorter approval times and deemed approval of the documents (such as designs, marketing materials, governance docs etc.) if approval/comments are not received from the operator within such timeframe.
7. IPR Warranties and Indemnities: The standard template RBA from the operator is unlikely to offer much in the way of warranties in relation to ownership of the brand or indemnities against IP rights claims. The owner will normally insist on these.
8. Strata Law Compliance: The RBA (and associated residential management agreement) will need to align with the applicable strata laws. In the UAE, these include:
the Dubai Law No. (27) of 2007 On Ownership of Jointly Owned Properties;
the Strata Title Law DIFC Law No. 5 of 2007; and
Law No. 3 of 2015 on Regulating the Real Estate Sector in the Emirate of Abu Dhabi.
9. Mortgages and Non-Disturbance Agreements: Any restrictions on the owner in relation to mortgages (and any associated non-disturbance agreement requirements) should only relate to the period of construction and sales and should cease to apply once the residential units are handed over to the purchasers and the common areas handed over to the home owners association.
10. Termination: Termination of an RBA needs to be handled carefully especially once residential units have been sold under the brand. The sale and purchase agreements entered into with the purchasers and associated strata documents should enable the owner to swap the brand in the future to mitigate the risks of such a termination.
If you would like any assistance with any mixed-use hotel projects please contact our team, who have extensive experience in the Middle East and further afield.