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  • Subject area(s): Engineering
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  • Published on: 7th September 2019
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A Management Service Agreement is to be concluded between Falco Fund, the owner, and Serpentine Hotel Experience, the service providing operator. Such agreement aims at defining the terms and the conditions under which the operator will carry out the management of Rimini Marina Grand Hotel in the name and on behalf of the owner.

Falco Fund will hereinafter be referred to as Falco. Serpentine Hotel Experience will hereinafter be referred to as Serpentine. The Rimini Marina Grand Hotel will hereinafter be referred to simply as hotel.

Duties of the Operator:

In managing the hotel Serpentine will perform the following activities:

Recruiting and mentorship of executive personnel

Provision of hotel and customer services

Informing the owner of circumstances that may affect the management

Marketing and advertising activities

Accounting

Commercial relationships

Ordinary maintenance

Serpentine shall manage and maintain the hotel and all of its facilities in a diligent, careful and vigilant way, in accordance with the common practice imposed by the high-end hotel standards in the industry and in the area in which the hotel is located. When operating, managing and renting out the hotel to third parties, it is required to apply prudent and reasonable business practices in Falco\'s best interests. In the performance of its duties Serpentine shall act solely on behalf of Falco, with the primary goal of maximizing the present value of hotel’s cash flow, maintaining its condition and fostering its international renown.

Duties of the Owner:

The duties of Falco include the payment of the predetermined remuneration (see section 5) and the care of extraordinary maintenance.

Remuneration and performance measure:

Serpentine will receive a remuneration including:

- a base fee equal to five-hundred thousand Euros (€ 500,000) in exchange for performing the duties specified in the contract (section 1);

- an incentive fee recognized where and if the annual percentage growth of Gross Operating Profit (GOP) is equal or above 2% with respect to the previous year. Such incentive fee is to be calculated on the increase in GOP, according to the table below:

Annual Percentage Increase in GOP

>= 2%

5% – 8%

>= 8%

Incentive fee (calculated as percentage of increase in GOP)

15%

25%

35%

Invoicing:

Invoicing shall be made annually within one week from the effective date of the agreement.

Term:

The Agreement shall remain into force for a period of twenty (20) years. It shall be automatically renewed for successive five-year periods, unless either Party gives written notice to the other Party not to renew it by registered letter with acknowledgement of receipt at least nine (9) months prior to each renewal date.  

Operator guarantees:

Serpentine is obliged to subscribe a bank guarantee which, should Serpentine achieve a negative annual GOP growth rate, shall restore the financial situation Falco would have been in had GOP growth been 0%.

Owner approval clause:

Serpentine has the responsibility of hiring and training the line-staff personnel; owner approval is only required for the hiring of senior management. Falco remains the employer of the hotel’s staff to enable continuity of employment and the hotel’s operation in case of contract termination with Serpentine.

Falco holds a veto right in the appointment of the hotel Director, has to approve the annual budget and has decision-making power over capital expenditure.

A percentage of 4% of total revenues must be accumulated as FF&E for the maintenance and periodic replacement of furniture, fixture and equipment. Falco reserves the right to arbitrarily amend this percentage. In case of lack of funds, the obligation falls upon the owner to provide funds to maintain the hotel according to the relevant brand standards.

Falco\'s consent is not required in decisions involving the appointment of an external service provider in relation to the hotel’s operations, such as housekeeping and engineering services. Falco\'s consent is called for in case one of the following holds:

the term of such contracts is longer than twelve (12) months;

the contract involves a monthly payment of more than five thousand Euros (€ 5,000).

Falco allows Serpentine to the leasing out of hotel spaces to third parties. Serpentine cannot enter into perpetual agreements or agreements longer than six (6) months involving the lease or concession of hotel spaces.

Limited Liability and Indemnification:

Falco is exempted from any liability whatsoever, both civil and tortious, should any claim or legal suit arise in relation to the hotel’s management, for which Serpentine shall be regarded as totally liable.

Serpentine agrees to defend, indemnify and hold Falco free and harmless from and against all claims, costs, expenses, demands, attorneys\' fees and disbursements, suits, liabilities, judgments and damages caused by the negligent acts, omissions, misconduct, or the failure to perform or exercise any of the duties, obligations, powers or authorities of Serpentine, Serpentine\'s employees, or any independent contractor hired by Serpentine.  

All individuals and staff employees are not personally liable for the performance of Serpentine’s obligations. Serpentine’s liability extends to personal injury caused by negligence and/or fraudulent misrepresentation by Serpentine itself.

Liquidated damages clause:

If Serpentine isn\'t able to reach a minimum annual GOP growth of 2% for the third year in a row, then Falco is entitled to claim for an amount of two hundred fifty thousand Euros (€ 250,000) as liquidated damages. Falco’s claim is viable for each consecutive year in which Serpentine is not achieving the adequate performance following the third. This clause is intended to cover reputational and other losses suffered by Falco. The Parties agree that the abovementioned sum is not a penalty, but rather a reasonable measure of damages, based upon the Parties’ experience in the hospitality industry and given the nature of the losses that may result from Serpentine\'s mala gestio. This provision shall not apply in the event of maladministration caused by force majeure.

Applicable law – Dispute resolution:

This Agreement shall be governed by and construed in accordance with English law. The Parties shall consult each other and settle amicably all the matters which arise from interpretation of the provisions of this Agreement and other matters arising therefrom.

In the event of any dispute or difference between the Parties on the construction of any clause herein contained or rights, duties and liabilities of the parties arising from this Agreement, the Parties agree to resolve such dispute or difference through arbitration.

Arbitration: The arbitrator shall be mutually agreed upon by both parties. The venue of arbitration shall be Rimini Marina Grand Hotel and the cost of arbitration shall be borne equally by the Parties.

Expenses: Were either Party to institute legal action against the other Party to interpret or enforce the Management Agreement contract or to obtain damages for any alleged breach of the contract, the prevailing Party in such action shall be entitled to a refund to cover attorneys\' fees.

Jurisdiction: The parties involved agree to apply English law to the extent permitted by mandatory provisions. Any dispute that cannot be settled through arbitration shall fall within the exclusive jurisdiction of the Commercial Court of England and Wales.

Termination:

This Agreement shall undergo termination in any of the following cases:

i) Bankruptcy: In the event that a petition for bankruptcy is filed against either Party for the operation of the hotel, Falco shall be entitled the right to terminate this Agreement.

ii) Sale to a Third Party: Falco reserves the right to sell the hotel to a third-party investor, granting solely a minimum rental duration guarantee of eight (8) years. In this perspective, it is entitled the right to terminate the Agreement with an advanced notice period of at least nine (9) months from the invoicing date, without prejudice to Serpentine’s pre-emptive right included in section 13.

iii) Sale to Serpentine: The transfer of the ownership of the hotel from Falco to Serpentine shall automatically lead to the termination of the Agreement.

iv) Termination by Falco: In case Serpentine does not achieve the target of a 2% increase in GOP for five (5) consecutive years, Falco will be entitled to terminate the Agreement with an advance notice period of at least six (6) months from the invoicing date.

v) Termination by Serpentine: Serpentine may terminate this contract:

in case Falco fails to compensate Serpentine for two (2) consecutive years, Serpentine is recognized the right to terminate the contract with, at least, a six (6) months\' advance notice from the invoicing date. Serpentine has the right to claim refund of the due remunerations;

Serpentine is recognized the right to terminate the contract without cause with at least a twelve (12) months\' advance notice period from the invoicing date.

In all abovementioned cases, the termination is to be considered effective from the upcoming invoicing date, so that no issues arise with respect to the estimation of the remuneration for non-complete periods.

Sale to a Third Party

In the perspective of the sale of the hotel, Falco is only willing to grant a minimum rental duration of eight (8) years. In return, it is willing to grant a pre-emptive right to Serpentine, which is subject to the following condition:

Falco shall give written notice of the sale to Serpentine in which the price and the conditions of the sale (date, installments if any) are made explicit; such notification has to be made by registered letter with acknowledgement of receipt;

Serpentine has sixty (60) days to exert its pre-emptive right, starting from the dispatch of Falco’s notification;

in case Serpentine waives his pre-emptive right it will not be in the position to claim for compensation;

the payment, unless differently agreed upon by the Parties, shall be made within ninety (90) days from Falco’s first notification (Posting Rule applies) alongside the signing of the sale contract in the form of a public deed;

if Falco fails to give communication and sells directly to a third party or communicates a price to Serpentine, which waives its claim, and then sells to a third party for a lower price, Serpentine can file an action to buy back the property within six (6) months from the transcription of the transfer of ownership.

The sale price must be agreed upon by the Parties. To ensure this, the Parties hereby agree to unanimously nominate a professional appraiser, which shall estimate the market value of the property. Once established by the appraiser, such price shall not be further bargained by the Parties.

Bank account: All monies received by Serpentine in connection with the management of the hotel shall be deposited in an operating account which is to be opened by Falco under the name of the hotel. A copy of the contract between Falco and the bank institute for the opening of such account is to be enclosed to the Management Agreement.

Non-compete clause: Serpentine is not allowed to enter other management service agreements with hotels in the city and province of Rimini, nor to open a facility with its own brand name, for the whole duration of the agreement – included possible renewals – and for the ten years following its termination.

Confidentiality/Nondisclosure:  

Each Party shall maintain complete confidentiality vis-à-vis third parties relating to all matters and issues dealt with in the context of this Agreement. Neither Party shall disclose to third parties and each Party shall put its best efforts in ensuring that its directors, executives, employees, subcontractors and suppliers keep secret all proprietary information disclosed by the other Party. Each Party agrees to take all reasonable precautions to maintain the confidentiality of all information received, which shall not be less than the precaution it takes to protect its own information.

In particular, Serpentine agrees not to disclose Confidential Information in any form to any person, firm or entity, or use the same for any purpose than what may be necessary to the performance of Serpentine’s duties under the contract. For the purposes of this Agreement, “Confidential Information” shall include, but not be limited to, all unpublished information pertaining to or in any way connected with Falco’s present or future products or services, standards, and procedures; all research, development, applications, and enhancements; all information relating to Falco’s customers, clients and accounts, as well as to executives, personnel or pay practices, marketing plans, business plans, business or marketing research; all information relating to Falco’s financial and/or other business affairs; all files, documents, contracts, materials, computer programs, printouts, source codes, techniques, routines, and information of every name, nature or description which pertains thereto.

Should Falco become aware that Serpentine is in breach of confidentiality for any reason whatsoever, it is entitled to claim an amount of two hundred thousand Euros (€ 200,000) as liquidated damages, irrespectively of whether the other Party is in fault or mistake. If Falco becomes aware that Serpentine has maliciously disclosed confidential information, then he is entitled to claim an amount of one million Euros (€ 1,000,000) as liquidated damages, on the condition that it is in the position of proving in Court the malicious intent of the other Party’s behaviour.

The provisions of this section shall survive any expiry or termination of this agreement for a period of ten (10) years.

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