Fireside Chat: Navigating the Hospitality Legal Landscape
Robin Zeidel spent four years in book publishing before following in her father’s footsteps by getting a law degree. When a Wall Street firm came knocking, Robin’s plans to join her father’s practice went by the wayside. She spent almost six years as assistant general counsel at Starwood before founding her firm, Zeidel and Associates, in 2010.
Robin and I met as members of the steering committee for Female Founders in Hospitality, a group focused on promoting companies founded by women. She is also a board member of the Academy of Hospitality Industry Attorneys and a frequent speaker at industry events. Today, Robin and I are going to talk about the practice of law, specifically in the hospitality sector.
But first, I have to ask: Why hospitality law? Why law at all?
Law was definitely my “Plan B.” I initially worked in book publishing, which I loved, but I quickly learned there was little opportunity for growth. I recall only one person getting promoted, and that was because her boss died. So, with minimal forethought, I decided to work with my father, who was a real estate lawyer. I took him to lunch and asked him if we could be partners. I quickly prepped for the LSAT and started law school. Ironically, I did so well in law school that I received an offer from the commercial real estate department at Stroock, an international law firm based in NYC, and did not actually work with my dad after law school after all!
Did you always plan to start your own firm, or did something happen to spur that decision?
No, I did not plan to start my own firm. I was actually happy working at Starwood, which had a stellar legal department. It was structured like a law firm, with an expert covering each area of the law, such as labor, intellectual property, etc. Unfortunately, Starwood decided to become “asset light” and divest much of its real estate while retaining the asset within the brand system under a management or franchise agreement. I began spending much of my time on those hotel sales.
My husband was the reason I started my own firm. He asked me: “What will happen when all those hotels are sold?” I began to realize that I was working in an area of the company that was about to become marginalized, and I did not want to work in a part of the business that was not the focus of growth. He and I had a 30-minute conversation in which he asked me some pointed questions, such as, how much per hour do you pay your outside counsel and could you charge less. We also discussed the cost of office space and how much I would need to pay for a full-time assistant. He quickly painted a compelling business model for opening my own firm.
When I left Starwood to open my own firm, they hired me on a monthly retainer, which they had never done for any former in-house attorney. That opened the door for me to other hospitality company clients.
What kinds of deals do you typically work on in the hospitality sector?
We represent owners, managers, tenants and brands on a variety of transactions, including buying and selling hotels, hotel management and franchise agreements, leasing of retail and other amenities, operations/vendor contracts, and construction contracts. We also handle food and beverage agreements.
It seems like F&B deals are a big part of your practice now. Can you talk about how those are generally structured, and the driving factors?
Yes, F&B deals have become a big part of our practice, representing both owners and operators. We are experienced with pivoting between leases, management agreements, licenses, consulting agreements, and the like. This is one of the things that distinguishes us from real estate firms that only understand leasing. In my experience, the driving factors that determine a legal structure are typically union issues and the liquor license structure. Sometimes the licensing structure can look a lot like franchise arrangements, so we are sensitive to those issues as well, even if this is a new concept to our restaurant clients.
I imagine you need to coordinate a lot with consultants of various kinds like our members. How does that coordination usually play out? What helps make a great team?
I definitely rely on consultants to help support the client. In my view, we are all on the same team, just playing different positions to represent the best interests of the client. I often encourage my clients to hire consultants to advise them, particularly if they are new to the industry or if they have decided to move forward with one operator or brand without having gone out to market. There are certain business issues that I am not qualified to advise on, but a consultant is.
A number of our consultants work on transitions – whether that is hotels changing owners, management companies, or brands. Can you talk about your role in those kinds of projects, and how you support the business objectives?
A lot of our work involves transitions as well. I am currently representing a hotel owner who is transitioning to a new manager because they are unhappy with the current one. In my role, I will read the hotel management agreement (HMA) and advise whether there is a termination right, how it can be exercised, and how to ensure the termination is legally effective. However, there are operational transition issues that a consultant is best suited to address. For example, on this particular transition, the hotel manager was initially cooperative and verbally agreed to shorten the transition time that was set forth in the HMA. However, they had a change of heart and became uncooperative and unpredictable.
The hotel manager decided to send their employees WARN notices even though they were advised that it was not legally required, just to “be on the safe side.” If you are not familiar with the WARN Act, broadly speaking, it is a federal statute that protects employees in the event of a mass layoff, and it is triggered only if there are at least 100 employees on-site, although there may be state statutes with lower thresholds. My client was concerned about employee panic that might ensue upon receipt of these legal notices, even though the new manager’s intent was to retain many of the employees initially. So this was another example of how I recommended that this client speak to an consultant specializing in transitions who could give them concrete strategic advice on how to manage this situation on the ground in real time.
What about design and construction contracts? That seems like a pretty specialized area, as compared to other hotel functions. Can you give us your impressions on that?
Yes, a big area of our practice involves design and construction contracts. We address PIPs, new builds, renovations, day-to-day maintenance and the like. We handle contracts with architects, engineers, general contractors, and various project consultants. This is a specialized area that can be difficult for the operations team to handle on their own without knowledgeable legal support, and of course, they often need project management consultants as well.
Is there a war story you can share about contracts that did not get legal review?
Yes. As we all know, every hotel requires many, perhaps hundreds, of vendor contracts, for parking to linens to IT and more. It can be difficult for hotels to keep up with each of them, including taking the time for comprehensive legal review. We provide operations teams with solutions for this problem, by requiring vendors to sign a form contract that we create rather than sign their forms, or we add a rider to the vendors’ contracts that will protect the hotel, as the language in vendors’ contract forms can have unexpected consequences.
In one case, while we were working on a hotel sale, we discovered that the hotel was encumbered by an antenna license agreement that renewed in perpetuity with no right for the hotel to terminate it. The buyer planned to demolish the building, which would not be possible unless the antenna contract was terminated. So, we negotiated a termination fee arrangement with the antenna company. This is an example of a contract that likely did not receive much attention prior to signature since it may have been seen as low-risk minor incremental income to the hotel. Even small contracts can have big consequences. It’s important to have a process in place for vendor contracts.
About the author
Susan Barry, President and Queen Bee of Hive Marketing and partner with Cayuga Hospitality Consultants, executes B2B marketing and commercial strategy projects for hotel owners, management companies, brands, investment groups and vendors. Thinking about trying something weird? We work with hospitality companies to deploy smart commercial strategy ideas. Special projects that don’t fit neatly into an org chart are our specialty. The hospitality industry relies on Hive Marketing when they need an injection of creativity through the lens of extensive hospitality industry experience. Reach out for sales, marketing, and revenue ideas that you’ve never heard before, executed with panache.
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