Owners can haggle for months over the base management fee. But the charges that can outstrip it hide in plain sight, across five different documents.
When owners and their advisers sit down to negotiate a hotel management agreement, the base management fee and incentive fee dominate the conversation, and understandably so as they are the headline numbers, typically a base fee of 2% to 4% of total revenue and an incentive fee of 8% to 10% of gross operating profit. What receives far less scrutiny, and does far more quiet damage to an owner’s bottom line over the life of the agreement, is the second layer of charges sitting beneath those headline figures: reservation fees, marketing and loyalty programme contributions, technology charges, and a long list of centralised services collectively known as shared services fees. Industry analysis is direct on this point: the cumulative impact of these charges can rival, or even exceed, the base fee itself in highly branded, distribution-driven environments. Yet they are quite often negotiated, if at all, as an afterthought.
What Are Shared Services Charges, Exactly?
Shared services fees are charges levied on a hotel for centralised services provided by the operator’s brand or parent company across its entire portfolio with the underlying commercial logic being that pooling these functions across many hotels creates economies of scale that, in theory, benefit every property in the system. In practice, the category covers a genuinely wide range of costs:
- Reservation fees, generally linked to bookings generated through the operator’s central reservation and distribution systems, charged either per reservation or as a percentage of room revenue.
- Marketing and loyalty programme contributions, funding global and regional sales efforts, brand advertising campaigns, loyalty point liabilities, and digital marketing platforms, typically pooled across the operator’s network and charged as a percentage of room revenue.
- Technology and system charges, covering the property management system, revenue management software, e-commerce connectivity, search engine optimisation, and the property’s presence on the operator’s own website and booking channels.
- Centralised support services, including accounting and financial reporting support, training programmes, quality assurance and brand standards audits, and guest satisfaction survey platforms.
- A wider still list of centralised marketing activity that some operators bundle into the same contribution such as client data warehousing, trade fair attendance, relationship marketing arrangements with airlines and card providers, global media buying, and even corporate public relations and communications.
Why These Charges Stay Hidden in Plain Sight
None of this is technically secret – it is disclosed somewhere in the documentation. The reason these charges nonetheless catch owners by surprise, often years into the relationship, comes down to several structural features of how they are typically presented.
First, these charges are frequently scattered across several different documents within the HMA package, referenced in the Term Sheet, elaborated in the Technical Services Agreement, and sometimes detailed in a wholly separate Shared Services Agreement and making the true, aggregated cost genuinely difficult to see at a glance, even for an attentive reader working through the documents in sequence.
Second, the language used is often deliberately open-ended: services charged “at cost,” or allocated “as reasonably determined by the operator,” without a clearly defined, contractually fixed methodology the owner can actually verify. An owner is frequently simply told what its allocated share came to for the year, with limited practical ability to test whether that figure is accurate, let alone reasonable.
Third, and most tellingly, operators are candid that shared services fees are generally standardised across their portfolio, and that this leaves little room for customisation or concessions on a per-property basis, since operators are keen to maintain consistency across all managed hotels. In other words, by design, these are often presented to owners as simply non-negotiable – a very different posture from the base and incentive fee negotiation, where at least the percentages themselves are actively contested.
Fourth, these charges tend to grow over time as the operator’s portfolio expands and as new centralised systems and services are introduced, often with limited advance consultation with individual owners, who discover the incremental cost only once it appears in the annual reconciliation.
What Owners Should Look Out For
Given the reality that operators resist genuine customisation of these charges more strongly than almost any other part of the fee structure, owners should focus their negotiating effort on the areas where movement is realistically achievable, rather than on the underlying charges themselves.
- Insist on an indicative and illustrative overall and total annual cost breakdown of all such charges with a complete, itemised schedule of every shared service and associated charge before signing, rather than accepting a summary reference to “applicable system fees.” An owner should know, upfront, precisely what categories of cost it is committing to.
- Push for a cap on total shared services charges, whether expressed as an absolute figure or as a percentage of revenue, rather than accepting an open-ended, uncapped allocation formula.
- Require a clearly defined, contractually fixed allocation methodology, for example, a defined formula based on room count or revenue share rather than language leaving the calculation to the operator’s discretion.
- Negotiate a genuine audit right, allowing the owner, or an independent accountant on the owner’s behalf, to review and verify the underlying shared services costs and the allocation calculation, ideally on an annual basis.
- Seek an assurance, however informally worded an operator may prefer, that the hotel is not being charged a disproportionately higher share of centralised costs than comparable properties elsewhere in the operator’s portfolio.
- Require advance notice, and ideally a right of consultation, before the operator introduces a new centralised service or materially increases an existing charge, rather than discovering the change only in the following year’s reconciliation.
- Question, service by service, which elements are genuinely essential to remain a branded, systems-integrated property, and which are better characterised as optional, value-added services that happen to have been bundled in as though mandatory.
Realistic Expectations, Not False Hope
It would be misleading to suggest owners can simply negotiate shared services charges down or unbundle every element from the brand relationship. Operators have a legitimate, defensible commercial rationale for standardising these costs across their portfolio, and the leverage available to a single hotel owner to force wholesale change to that structure is genuinely limited. But asking to know upfront what the total annual cost is likely to be, transparency, a hard cap, a defined methodology, and a real audit right are different asks entirely from renegotiating the underlying economics and they are achievable, they cost the operator little in principle since it need not actually change how it runs the shared services function, and they give an owner the tools to know, year on year, exactly what it is paying for and why.
The base and incentive fee will always attract the most negotiating attention, because they are the numbers everyone understands intuitively. The shared services cost deserves just as much scrutiny, precisely because it so rarely gets any.
Tim Dobson is the Founding and Managing Partner of Dobson & Partners, a boutique international law firm based in Bangkok, and is ranked by Chambers Asia-Pacific for his hospitality and hotels practice. He has acted for hotel owners across Thailand, Vietnam, Cambodia, Bangladesh and the Maldives in the negotiation of hotel management agreements against most of the world’s major international hotel operators.