Hotel due diligence: legal, technical, financial list

An operating hotel is three things bought at once: a building, a licensed business and a team. A defect in any of them can erase the return that the price was based on. Due diligence is the structured check that tells you what you are really buying, and it is done before you commit money, not after. This checklist is written for a private or family-office buyer who relies on independent advisers; it does not replace them.

Phase 1: before an offer

Start with what can be checked cheaply, because most deals that fail, fail here.

• Basic facts: seller identity, the land register entry or equivalent, and whether the seller owns the building, the land, and the operating business, or only a lease of one of them.
• Three years of monthly accounts, the current budget and the room-night statistics by channel. Compare them with the market in hotel market metrics: occupancy, ADR, RevPAR and comp sets.
• The reason for sale. A retiring owner is a different story from an owner who has stopped investing in the property.
• Whether the sale is of the property alone (an asset deal) or of the company that owns it (a share deal). This decides which liabilities you inherit; see holding structures and taxes for hotel owners.

Ask for a non-binding offer with an exclusivity period and a clear list of conditions. Exclusivity should be paid for by a short, realistic timetable on your side.

Legal: title, zoning and licences

• Title: an extract of the property register, mortgages, easements, pre-emption rights, pending court cases, and any claim by a former owner or heir. In some markets, restitution claims and disputed boundaries are real risks.
• Zoning and permits: confirm that the current use as a hotel is permitted under the local plan and that the building was built and later extended with valid permits. Unpermitted extensions, rooftop terraces and converted basements are common and can be hard to legalise.
• Hotel licences: tourism registration, the right to operate as a hotel rather than a rental, alcohol and food licences, and the star or category classification. Check whether the licence is tied to the owner, the operator or the building, and whether it survives a sale. Classification matters for pricing and for some booking and tax regimes, and it can be lost if standards are not maintained.
• Coastal and heritage rules: protected buildings, beach-front setbacks and concessions for beach or marina use are state-granted and can be time-limited.
• Foreign-buyer limits: some jurisdictions restrict land ownership by foreigners or require approval, or use long leases instead. See the country guides in our hotel series.

Technical: the building and its systems

Commission an independent technical survey. The seller's maintenance log is useful but not independent.

• Structure and envelope: foundations, roof, facade, damp, and evidence of settlement. A structural engineer should sign off any building older than about fifty years or one with major alterations.
• Fire safety and life-safety certificates: fire certificate or equivalent, alarm, sprinklers where required, evacuation plans, emergency lighting, accessible routes. Ask for the last inspection dates and any open orders.
• Mechanical, electrical and plumbing systems (MEP): boilers, chillers, ventilation, lifts, electrical capacity, hot-water and legionella controls, pool plant, kitchen extraction. Request the remaining useful life of each and the cost to replace.
• Capex backlog: a list of work needed in the first one to three years, with a cost estimate. Compare it with the reserve discussed in how to read a hotel profit and loss. A hotel that has run for years on a minimal reserve usually needs a refurbishment, and that cost belongs in the price.
• Energy and environmental: energy certificate, fuel tanks, asbestos in older buildings, flood and wildfire exposure, and local rules on water use. Energy efficiency rules are tightening in the EU, so a poor rating can mean future capex.

Operating business: people, contracts and channels

• Employees: list every employee, contract type, seniority, accrued leave and pending claims. In EU member states the Acquired Rights Directive (Directive 2001/23/EC) generally keeps employment contracts with the business when it transfers as a going concern, so the buyer takes the staff and their accrued rights, in the style of the UK TUPE rules. National implementation differs, and outside the EU the rules vary widely. In a share deal the employer does not change at all. Have local counsel confirm the position before you value the staff cost.
• Seasonal and agency staff, and any informal cash payments: undeclared work is a liability that follows the business in many countries.
• Contracts: management or lease agreement, franchise or brand licence, supplier and service contracts, equipment leases, software and channel-manager contracts. Look at change-of-control clauses, termination fees and exclusivity. See hotel management agreements, leases and franchise.
• Distribution: the share of room nights from online travel agencies, the commission paid, direct bookings, corporate and group accounts. A hotel that depends on one or two platforms for most of its bookings has less pricing power and more risk. Ask for production by channel for three years, and check the cancellation and no-show rates.
• Reviews and reputation: scores and trend on major platforms, and how management responds.

Financial and tax

• Reconcile the monthly accounts with bank statements, VAT and tourist-tax returns, and the sales figures in the property management system. Differences show where the numbers have been polished.
• Tax compliance: VAT, corporate tax, payroll tax, tourist tax collection, municipal and property taxes. Request tax clearance or the equivalent certificate, and confirm in the purchase contract who bears pre-closing liabilities.
• Debt and security: existing loans, guarantees, liens on equipment, deposits held for guests, vouchers and gift cards not yet redeemed.
• Insurance: current policies, the claims history for at least five years, uninsured events, and whether the cover will transfer. Repeated water, fire or injury claims point to a maintenance or management issue.

How to run the process

Order the work so that cheap checks come first. A practical sequence is: basic documents and a desk review; a limited legal red-flag review; the technical survey; then the full legal, tax and financial work once the main risks are acceptable. Set a data room with an index, record every request and answer, and agree in writing what the seller warrants. Warranties, an escrow or retention, and a clear price-adjustment mechanism for debt and working capital are normal parts of the contract.

Red flags

• Reluctance to show monthly figures, bank-reconciled sales, or the booking system.
• Accounts that do not match tax filings.
• Unpermitted construction or a licence held in a third party's name.
• Heavy reliance on one booking platform or one corporate client.
• Deferred maintenance with no capex budget.
• A price that assumes a refurbishment or repositioning without a funded plan.
• Pressure to sign quickly or to pay a large non-refundable deposit.

FAQ

How long does hotel due diligence take? For a single operating hotel, commonly two to four months from signed exclusivity to closing, depending on the country, the size and how organised the seller's documents are. Complex assets or regulatory approvals take longer.

How much does it cost? Fees depend on the country and the asset, so ask advisers for quotes. Many buyers treat due diligence as a small percentage of the price and an insurance against a much larger error.

Do I need a technical survey for a small guesthouse? Yes, at a lighter scope. Roofs, damp, electrics and fire safety are expensive when wrong, whatever the size.

Can I rely on the seller's warranties alone? No. Warranties are only as good as the seller's ability to pay later, so combine them with your own checks, a retention or escrow, and, where available, warranty and indemnity insurance.

What if the hotel is in a share deal? You buy the company with all its history. The review of tax, employment and contract liabilities must be deeper than in an asset deal.

How we help

We are a trilingual platform that finds properties and coordinates independent local lawyers, surveyors and tax advisers for buyers who read Russian, Polish and English. We do not carry out the due diligence ourselves and we do not guarantee outcomes. This text is general information, not legal, tax or investment advice; rules differ by country and change, so verify the current position with your advisers.