How to check a hotel brand claim in an off-plan project

An off-plan hotel is sold on three promises at once: it will be built, it will open and it will run under a famous name. The brand is often the strongest of the three in the brochure and the weakest in the paperwork. This guide shows how to check what the name actually means for a specific project, in order. It is general information, not legal, tax or investment advice, and capital is at risk.

What "under brand X" can mean

The phrase can describe very different situations. From strongest to weakest:

• A signed management or franchise agreement for this hotel, with a stated term and conditions.
• A signed agreement that is still subject to conditions: financing, permits, an opening date or sales targets.
• A letter of intent or a term sheet, which usually does not bind the brand.
• A name licence for marketing, where the brand has no role in running the hotel.
• A design or consulting role presented as a brand association.

Sellers do not always say which one applies. The check below is designed to find out.

Step 1: ask for the agreement

Ask in writing for the signed agreement, or for a summary signed by the developer's lawyer: the parties, the type (management, franchise, licence), the date, the term and renewal, the opening date and what happens if it is missed, and the conditions still open. Many contracts have confidentiality clauses, so a redacted copy or a lawyer's summary is a fair request. A refusal to show anything at all is information. Our guide to checking a hotel developer and an off-plan project covers the developer side of the same question.

Step 2: read the brand's own pipeline carefully

Large brands publish development pipelines in presentations and regulatory filings. Two cautions:

• We found no official, comparable definition of what counts as signed or approved for development. Practitioners describe pipelines that range from early letters of interest to buildings under construction, with only a subset of deals having land in hand. The definitions are in the footnotes of the brand's own filings, so read those.
• A project can sit in an industry pipeline before it has a brand. One industry tracker reported that roughly four in five non-casino projects in a US pipeline had made a branding decision, which also means that about one in five had not. That is a US figure and is quoted here only to show the point.

Ask the brand's development team to confirm in writing the status of a named project. Brands may decline, but a developer who has a signed deal should have no difficulty obtaining a confirmation letter.

Step 3: understand the licence chain in branded residences

If you are buying a residence rather than a hotel room, the structure is different, and law-firm commentary describes it fairly consistently:

• The developer holds a marketing licence from the brand and usually pays the brand a share of each unit sale.
• The residences are linked to a hotel management agreement. If that agreement ends for any reason, the residence licences usually end with it. The reverse is not necessarily true.
• Brands often have the right to end a licence if the developer misses sales targets, and licences commonly run for about 10 to 15 years with renewal options.
• Buyers usually sign an acknowledgement that the brand is not the seller, and often a waiver of claims if the brand is removed. Whether such a waiver is enforceable differs by country.
• The practical protection for buyers is often reputational rather than legal, because the brand does not want its name attached to a failed project.

Read the section on this topic in our guide to branded residences, condo hotels and fractional ownership, and ask a lawyer in the country of the project about the waiver.

Step 4: ask what happens if the brand leaves

De-branding can follow the end of a management agreement, a dispute, missed sales or, according to some commentators, a failure to fund the common areas. Ask in writing:

• Which events allow the brand or the operator to end the agreement, and what notice and cure periods apply?
• Who pays for removing signage and replacing the systems?
• Who runs the hotel afterwards and under which standards?
• Who owns the guest data and the online reviews?
• What happens to the rental programme and to owners' income arrangements?

We found no reliable figure for how much de-branding changes the value of a unit, so do not accept any number the seller offers without a source.

Documents to request in writing

• The signed brand agreement or a lawyer-certified summary, with the conditions that remain open.
• The brand's written confirmation of the project's status.
• The developer's building permits, the construction timetable and the opening date in the contract.
• For residences: the licence summary, the buyer acknowledgement and the sale contract, with the clauses on brand removal marked.
• For a rental programme: the programme contract, the operator's accounts and the reserve policy, as in the guide to rental pools and guaranteed yields.
• The financing and escrow arrangements for the money you pay before completion.

Red flags

• The seller cannot or will not say which entity signs with the brand.
• The brand name appears but the contract is described only as "in advanced negotiation".
• The opening date has moved several times without a written explanation.
• Promised yields are presented as a result of the brand, with no operator accounts behind them.
• The sale contract says nothing about the brand, or the buyer is asked to waive claims about it.
• Pressure to pay before any document is shown.

How the claim fits the wider question

A brand can be a real strength: distribution, standards and a name that buyers recognise. The point of the checks above is that the strength exists only if the contract is real and survives the project. For the other side of the argument and for the contract structures, see when a local independent hotel beats a chain, who really runs your hotel under a big brand and the general due diligence checklist.

How we help

We can prepare the written questions for the developer and the brand, review the documents you receive with your lawyer and compare the answers with what the brochure says. No return is promised, and any figure belongs to the seller's documents and should be checked by your own adviser.