Why owners should look twice at a clause they often sign without a fight
Of all the clauses in a hotel management agreement, the indemnity provision rarely gets the attention it deserves. Owners and their advisers will spend days on management fees, weeks on termination rights, and months on performance tests. The indemnity clause, by contrast, often reads as boilerplate — dense, familiar-looking, and easy to wave through on the assumption that “this is how it’s always drafted.” That assumption costs owners more than almost any other provision in the agreement, because the indemnity clause is where the operator’s day-to-day control over the hotel and the owner’s ultimate legal exposure collide.
What the Operator’s Template Usually Asks the Owner to Accept
Every operator arrives at the negotiating table with its own long-form template, refined over decades and hundreds of properties. On indemnities, that template typically asks the owner to indemnify the operator broadly — often in terms covering any and all claims, losses, damages, and costs of any kind arising out of the operation of the hotel, with only the thinnest carve-out, if any, for the operator’s own gross negligence or wilful misconduct. Several features of these clauses deserve particular scrutiny:
- No genuine carve-out for the operator’s own negligence. Many templates limit the carve-out to gross negligence or wilful misconduct only, leaving ordinary negligence by the operator’s own management team — the very people running the hotel day to day — squarely within the owner’s indemnity obligation.
- Uncapped exposure. The indemnity is frequently drafted without any monetary ceiling, exposing the owner to unlimited liability for events over which it has no operational control.
- Fault-blind triggers. The obligation to indemnify is often triggered regardless of the proportion of fault, meaning an owner can end up bearing the full cost of a claim even where the operator’s own conduct was the dominant or sole cause.
- Broad definitions of loss. Many templates define indemnified losses expansively enough to capture consequential damages, reputational harm, and third-party regulatory penalties, well beyond direct out-of-pocket cost.
The Clause That Is Usually Missing Entirely
Here is what a careful reading of most operator templates reveals: there is very often no reciprocal indemnity running from the operator to the owner at all. The owner indemnifies the operator. The operator, having drafted the document, rarely extends the same protection back.
On one view, this looks like simple asymmetry of negotiating power — the operator wrote the template, so naturally it favours the operator. But look more closely at what actually happens on the ground in a managed hotel, and the omission becomes harder to justify on any principled basis. The operator’s own team runs the hotel. It hires, trains, and supervises the staff. It sets and enforces (or fails to enforce) safety, security, and operational standards. It controls fire systems, evacuation procedures, food safety protocols, and maintenance schedules. When something goes wrong because of a failure in that operational control, it is very often the owner, as the entity that holds the hotel licence, the property title, and frequently the formal employment relationship with hotel staff, who stands first in line to be sued.
Consider a few scenarios that are neither exotic nor rare in the hospitality industry:
- A General Manager fails to ensure the hotel’s fire suppression systems are properly maintained and tested, and fire safety drills are not conducted as required. A fire breaks out, a guest is injured or killed, and the hotel sustains major damage. The owner, as licence holder and property owner, is named as a defendant.
- Kitchen staff, operating under the operator’s own food safety protocols, mishandle food preparation, leading to a serious food poisoning outbreak affecting dozens of guests. Claims and regulatory scrutiny follow, again directed first at the owner.
- A staff member, hired and supervised entirely by the operator’s HR function under the operator’s own vetting standards, assaults or otherwise harms a guest. The hotel is sued for negligent hiring and inadequate supervision.
- Pool or spa facilities, maintained under the operator’s technical standards, are not kept to a safe standard, resulting in a serious guest injury.
- A cybersecurity failure in the operator’s own reservation or property management system results in a data breach affecting guest personal information, triggering regulatory penalties under data protection law.
- A third party alleges that the operator’s own brand name, logo, or proprietary reservation and booking technology infringes its trademark or other intellectual property rights. The owner had no role in selecting or developing that brand or technology and relied entirely on the operator’s representations as to its right to license it, yet as the party publicly using the brand and taking guest bookings under it, the owner can be drawn into the resulting litigation, or forced into a costly and disruptive rebranding at short notice.
- Under the Technical Services Agreement, the operator requires the owner, as a condition of brand compliance, to engage specific pre-opening consultants, designers, or FF&E suppliers from an operator-approved or operator-nominated list. One of these nominated parties proves unreliable, delivers defective work, or simply falls short of the required standard — despite the owner having had little genuine choice in the selection — leaving the owner to absorb the resulting cost overruns, delays, and remedial expense.
In every one of these scenarios, the root cause lies in decisions and systems that sat entirely within the operator’s control, not the owner’s. Yet under the typical one-sided indemnity clause, the owner may have no contractual right to recover its own defence costs, settlement payments, or losses from the operator whose team caused the problem in the first place.
“Don’t Worry, It’s Covered by Insurance”
This is the point at which operators, quite reasonably, will say that insurance exists precisely to cover this kind of risk, and that the hotel’s general liability and other policies should respond to claims of this nature. That is often true as far as it goes. But it is not the complete answer that it is sometimes presented as being, for at least three practical reasons.
First, insurance policies carry deductibles, and for a hotel of any scale those deductibles are rarely trivial — often running into tens of thousands of dollars or more per claim. Someone has to absorb that excess, and in the absence of a properly negotiated indemnity, it is almost always the owner.
Second, insurance coverage is not unconditional. Policies commonly carry exclusions, and insurers routinely dispute coverage where the circumstances of a claim are contested — for example, where the insurer argues the loss arose from a known and unaddressed defect, a failure to maintain, or conduct falling outside the policy’s definition of an insured event. When that dispute arises, the owner can find itself litigating on two fronts simultaneously: defending the underlying claim, and fighting its own insurer over whether the policy responds at all.
Third, the adequacy and structure of the insurance programme is frequently determined, or at least heavily influenced, by the operator itself, often through its own preferred broker and policy wordings embedded in the management agreement. The owner bears the ultimate liability but may have only limited real input into whether the coverage in place is actually adequate for the risk.
What Owners Should Be Negotiating For
None of this argues against owners providing any indemnity to their operator — that would be commercially unrealistic and is not what sophisticated operators would ever agree to. The argument is for mutuality, and for precision. Specifically, owners and their advisers should be pressing for:
- A genuine carve-out excluding the operator’s own negligence, not merely its gross negligence or wilful misconduct, from the scope of the owner’s indemnity obligation.
- A reciprocal indemnity from the operator to the owner, covering losses arising from the operator’s negligence, wilful misconduct, or breach of the management agreement in the performance of its management functions.
- Proportionate liability provisions, so that where both parties bear some responsibility, the indemnity obligation reflects that apportionment rather than falling wholly on one side.
- A sensible cap on the owner’s indemnity exposure, save in cases of gross negligence or wilful misconduct, which should remain uncapped for both parties.
- Clearly specified minimum insurance standards, with the owner retaining meaningful rights of review and approval over the adequacy of coverage, and clarity on who bears policy deductibles in the event of a claim substantially attributable to the operator’s own conduct.
- An indemnity from the operator against third-party intellectual property infringement claims arising from the owner’s licensed use of the operator’s brand, trademarks, systems, or technology, since the owner has no ability to vet or control what it is required to use.
- Where the operator mandates or nominates specific consultants, designers, or suppliers under the Technical Services Agreement, either an indemnity or, at minimum, a warranty that reasonable due diligence has been carried out on their competence, protecting the owner against losses arising from the failure or substandard performance of any such nominated party.
A Clause Worth Fighting For
Operators will resist these changes, often on the basis that “this is market standard” or “no other owner has asked for this.” In our experience, that resistance reflects negotiating posture more than genuine market consensus — mutuality of this kind is achievable, and has been achieved, in properly negotiated agreements. The indemnity clause deserves the same rigour that owners now routinely apply to management fees, performance tests, and termination rights. Left unexamined, it is the clause most likely to turn an operational failure that was never within the owner’s control into a liability that falls entirely on the owner’s shoulders.
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.