This Note discusses:
Hotels as an Operating Business
A hotel is more than just real estate and improvements. It is an operating business with many moving parts that change daily, including:
Unlike many commercial real estate contracts, a hotel PSA must include mechanisms to address these operational concerns.
Another key distinction in the purchase and sale of hotels is that hotels may be either “branded” or “unbranded.” Unlike an office building or mixed-use property, the brand name or “flag” of a hotel adds significant value to the hotel. Where there is a brand associated with the hotel, the brand name is licensed to the hotel owner by a franchise agreement or licensing agreement.
The parties must agree at the outset whether the hotel is being sold either:
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]]>For a detailed discussion on Chicago’s shared housing ordinance, see Practice Note, Chicago’s Shared Housing Ordinance (IL).
Internet Providers
There are generally two types of internet providers for short-term rentals:
(Chicago Municipal Code § 4-13-100.)
Rental Intermediary
A rental intermediary under the shared housing ordinanceis any person or entity that for compensation or for a fee:
A shared housing unit is a dwelling unit that:
(Chicago Municipal Code §§ 4-6-300, 4-13-100, 4-14-010, and 17-17-0104-S.)
Advertising Platform
An advertising platform is any person or entity that for compensation or for a fee:
(Chicago Municipal Code § 4-13-100.)
An advertising platform typically:
(Chicago Municipal Code § 4-13-100.)
Shared Housing Surcharge and Hotel Accommodations Tax
The shared housing ordinance imposes a tax of 4% of the gross rental or leasing charge for a short-term rental (shared housing surcharge). The purpose of shared housing surcharge is to fund supportive services for:
Up to 8% of the shared housing surcharge is used to enforce the shared housing ordinance with the remaining revenue for supportive services.
The shared housing surcharge is in addition to an existing hotel accommodations tax of 4.5% of the gross rental or leasing charge that is imposed on short-term rentals for a total tax of 8.5%.
(Chicago Municipal Code § 3-24-030.)
License Fees
The shared housing ordinance requires that certain entities and individuals pay a license fee to operate within Chicago.
A rental intermediary must pay a license fee of:
An advertising platform must pay a license fee of:
A shared housing unit operator must pay a license fee of $250.
(Chicago Municipal Code § 4-5-010.)
Obligations and Responsibilities
The shared housing ordinance also:
The shared housing ordinance imposes financial penalties on hosts for noncompliance with the ordinance.
For more information about the ordinance, see City of Chicago: Shared Housing Surcharge. For a copy of the shared housing ordinance, see the Chicago of Chicago’s website.
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]]>On August 22, 2016, the IRS issued Revenue Procedure 2016-44, which provides new guidance on safe harbor provisions for management contracts for properties financed with tax-free government bonds. The new regulations loosen requirements under the previous guidance in Revenue Procedure 1997-13, as amended. These new regulations will have a large impact on publicly-financed hotels, which are commonly operated under management contracts by popular hotel brands.
Background
Many municipalities look to finance the construction of public projects with bonds. These government bonds are tax-exempt to the bondholders because the project serves a public purpose and is owned by a qualified user (depending on the project, either a governmental entity or a 501(c)(3) organization). However, owners of these public projects usually retain private management companies to operate them under “qualified management agreements.”
Hotels are often publicly-owned and funded through bond sales to serve other nearby public facilities like airports, convention centers, and stadiums. Many hotels are operated by branded managers under management contracts. For an example of the structure of a manager-managed hotel, see Branded Hotel Management Arrangement Chart.
When a hotel is publicly-owned and financed, it must meet specific IRS requirements so that use of the property is not a private business use (including the management company profiting from the property). A private business use causes the bonds to be taxable. These IRS requirements make negotiation of the hotel management agreement more challenging. Historically, limits on the length of contracts, type of compensation structure, operations, and uses of the property have caused hotel managers to enter into arrangements that vary considerably from what is customary in the hospitality industry. Hotel managers abandoned traditional management agreement terms, such as incentive fee compensation and renewal options, in order to meet IRS guidelines.
The IRS established new safe harbor provisions to provide greater guidance on structuring management contracts to prevent a private business use or other taxable event. The provisions cover important aspects of management contracts including management fees, operating terms, and affiliate contracts.
Rev. Proc. 2016-44 Safe Harbor Provisions and Requirements
The new revenue procedure describes several conditions that, if met by the terms of a management contract, the manager’s role under the management contract is not considered a private business use of publicly-financed property:
Effective Date
The new safe harbor provisions apply to management contracts entered into on or after August 22, 2016. Issuers and borrowers can elect to apply the new provisions to contracts entered into before August 22, 2016. Issuers and borrowers may also elect to apply the prior safe harbor requirements for management contracts entered into before February 18, 2017.
Practical Implications
The new IRS safe harbor provisions are significant because they represent a relaxed posture towards the use of publicly-issued bonds to finance public projects. The new rules allow for:
The new revenue procedure will also affect 501(c)(3) charitable organizations, hospitals, public housing, schools, public private partnerships, and various other privately managed organizations funded with government bonds.
Counsel should review, and consider modifying, all management contracts for bond-financed properties to take advantage of the new regulations.
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Practical Law Real Estate offers hotel owners and developers, and their counsel, a variety of resources related to hotel property transactions:
Practical Law provides legal know-how that gives lawyers a better starting point. Our expert team of attorney editors creates and maintains thousands of practical resources across all major practice areas. We go beyond primary law and traditional legal research to allow you to practice more efficiently and improve client service.
]]>In a decision on Friday, the Nevada Supreme Court found “insufficient evidence” to support a May 2013 jury verdict in favor of Richard Suen and Round Square Co, a company he partially owned, and ordered a new trial on damages.
Suen had sued Las Vegas Sands in 2004, claiming he had arranged meetings in Beijing between Adelson and Chinese officials that helped pave the way for the billionaire’s company to build, finance and operate casinos in Macau.
A jury in Clark County, Nevada awarded $70 million, which grew to more than $100 million with interest and costs.
But the Nevada Supreme Court found that while Las Vegas Sands benefited from Suen’s help, there was only a “tenuous relationship” between that value of that help and the benefits that the company ultimately enjoyed from operating in Macau.
Las Vegas Sands had sought to overturn the verdict, or else limit damages to $1 million.
John O’Malley, a lawyer for Suen, declined to comment.
Las Vegas Sands spokesman Ron Reese said the court decision “affirmed the company’s position that Mr. Suen failed to provide substantial proof of any meaningful damages.”
Las Vegas Sands operates four resorts in Macau, which can be reached in about one hour by ferry from Hong Kong.
Friday’s decision marked the second time the Nevada Supreme Court overturned a damages award in Suen’s favor.
In 2010, the court voided a $43.8 million verdict that had been awarded by a different jury two years earlier, citing errors by the trial judge.
Adelson is worth $28.8 billion, making him the world’s 21st-richest person, Forbes magazine said on Monday.
The case is Las Vegas Sands Corp v. Suen et al, Nevada Supreme Court, No. 64594.
Read the original article here.
]]>Since Zika was detected in Brazil last year, the mosquito-borne virus has spread to 33 countries, most of them in the Americas.
The World Health Organization declared an international health emergency because of strong suspicions that infections in pregnant women may cause microcephaly, a condition in which infants are born with abnormally small heads and can suffer developmental problems.
While the virus had typically caused mild symptoms in adults, it also has been linked to an autoimmune disorder called Guillain-Barre syndrome that can cause paralysis.
U.S. and world health authorities are not currently warning against all travel to affected areas, as they did with the 2014 Ebola outbreak in West Africa. They are, however, advising pregnant women to consider postponing travel, and all travelers to take precautions to avoid mosquito bites. Adherence to the recommendations of the U.S. Department of State or the World Health Organization would shield companies to a large degree from claims they acted recklessly in sending employees into Zika-affected areas, lawyers who typically represent employers say.
The U.S. Centers for Disease Control and Prevention (CDC) further recommends that travelers wear insect repellent and sleep with mosquito nets in places where they might be bitten, among other measures.
“Your defense to any sort of claim is that you follow the public health guidance,” said Mark Lies, a lawyer with the firm Seyfarth Shaw, which specializes in advising companies on employment issues.
Such advisories also mean workers probably would not be protected from termination if they refuse to go to an affected area, lawyers said. While the federal Occupational Safety and Health Act gives workers the right to refuse dangerous tasks, those tasks must pose an immediate risk of death or serious injury.
Something like working with a “defective tool that has electrical sparks coming out of it” would meet that standard, said Ben Huggett of Littler, another employment law firm. Traveling to a Zika-affected area, on the other hand, would probably not, he said.
Lies said upgraded warnings in the event Zika proves more lethal or virulent could give workers more of a right to refuse travel. But he said OSHA affords no special protection for pregnant women under current threat levels. The law governs only the safety of employees, not any unborn children they may be carrying.
If employees contract Zika while traveling on the job, any immediate harm they suffer would be covered by worker’s compensation insurance, a form of no-fault insurance that applies to injuries suffered on the job. Virtually all states require employers to obtain worker’s compensation insurance and mandate that it be the sole remedy for workplace injuries.
Worker’s compensation covers lost wages and medical care but awards are typically smaller than private lawsuits, which can seek to recover damages for pain and suffering, as well as punitive damages for negligence.
Whether worker’s compensation would cover any purported Zika-related injuries in an employee’s baby is less clear. Huggett said that a fetal injury might be covered as being derivative of the mother’s injury.
Huggett said he was unaware of any case that directly addressed worker’s compensation for a fetus harmed by an infectious disease. “It’s really an open question,” he said.
Lies said he did not believe worker’s compensation would generally cover injury to a fetus but thought it could open the door for an employee to bring a lawsuit against her employer for negligence.
“If someone is pregnant, or trying to get pregnant, or could get pregnant, you could have a case,” said Katherine Dudley Helms, a lawyer with employment law firm Ogletree Deakins.
Many states limit worker’s compensation to several years’ pay, while a damage award for a severely impaired child could reach tens of millions of dollars, according to Michael Jones, an employment lawyer with Reed Smith.
Michael Gerson of California firm Boxer & Gerson, who brings claims on behalf of employees, said such a case would still be a challenge if the company followed official warnings. The evidence would have to show “that the mother was never given adequate warning to protect herself as she was going into this type of environment,” he said.
But Jones said such cases would be tough for the employer too. “I would be concerned if I sent an employee to a high risk region,” he said. “If that claim gets in front of a jury, you’re going to be looking at a very sympathetic plaintiff.”
Reuters reported last week that several international airlines are allowing flight crew members who are or may become pregnant to request reassignment to routes that avoid Zika-affected areas.
A spokeswoman for one of the airlines, American, declined to comment on possible legal liability requiring such travel could have created, saying the company’s policy was motivated by concern for employees’ well-being.
United and Delta, which have also offered to reassign their employees, could not immediately be reached.
(Reporting By Brendan Pierson in New York, Editing by Anthony Lin and Lisa Girion)
View the original article here.
]]>On November 16, 2015, Marriott International announced its $12.2 billion acquisition of Starwood Hotels and Resorts Worldwide. The deal is the largest acquisition in the hospitality industry since Blackstone Group bought Hilton Hotels & Resorts for $26 billion in 2007.
If the deal goes through (as is expected in mid-2016), the combined company will emerge as the largest hotel company in the world, encompassing 30 hotel brands, 5,500 hotels under management, and 1.1 million hotel rooms worldwide.
According to Fitch Ratings, this acquisition marks the beginning of a possible increase in M&A activity in the hospitality sector. This Article briefly explores this trend and its potential implications on the industry, including the impact on owners, franchisees and hotel developers.
Increased Hotel M&A
The predicted rise in hotel consolidations is largely attributed to the sector’s evolving landscape. In addition to expected competition among the established industry players, large hotel chains are increasingly facing competition from popular new alternative lodging arrangements such as Airbnb and other companies that focus on short-term rentals. Experts explain that scale is particularly important in the hospitality industry, with the most profitable companies being those with the most rooms in the most locations.
The rapid growth and success of Airbnb has seemingly also had an effect on companies ancillary to the hotel industry, such as travel websites, as evidenced by Expedia’s recently announced takeover of Orbitz Worldwide, Travelocity, and HomeAway (a site that allows owners to rent out their homes for longer stays).
Many experts believe that the sheer size and breadth of the Marriott holdings following the acquisition could prompt other hotel companies to join forces with smaller operators to avoid being outpaced in the market. This transaction will likely cause other companies to consider mergers when they had not considered them an option previously.
Fitch Ratings also suggests that REIT privatizations will play a large role in upcoming hospitality acquisitions because of better access to low cost debt. This prediction comes largely in response to Blackstone’s announcement in September that it had finalized an agreement to acquire lodging REIT Strategic Hotels & Resorts in a deal worth approximately $6 billion.
Implications for Hospitality Players
While the Marriot-Starwood deal is certain to impact shareholders of both companies (in fact, it already has, with Marriott shares rising and Starwood shares falling after the announcement), the deal, and others like it, will likely also have a significant effect on hotel owners and developers.
As hotel companies merge to form larger hotel conglomerates, the differences between individual hotels will fade. These new consolidations may offer less flexibility and unique character differentiations as newly merged hotel chains strive to achieve uniformity across their locations. Owners looking to meet specific demands of local markets will find fewer options that truly meet their unique business needs.
Fewer hotel companies also means less competition. Therefore, in addition to having fewer choices, with less players in the market, owners will face a reduction in bargaining power when choosing a franchisor and negotiating a franchise agreement. This problem could affect even those owners with hotel properties in highly desirable areas.
Although this trend towards increased M&A will likely have some negative implications for the industry, this shift may also open up opportunities for new entrants into the market. As the larger brands merge and create less specialized, more uniform franchises, new, smaller hotel brands may have the opportunity to gain a market share by catering to the unique demands of owners looking to maximize value in individual locations and among new consumer classes.
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Practical Law Real Estate offers hotel owners and developers, and their counsel, a variety of resources related to hotel property transactions:
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]]>The letter, addressed to Senate Commerce Committee Chairman John Thune, a South Dakota Republican, says service would be suspended where Amtrak must rely on freight and passenger railroads that will not meet the deadline for operating the technology known as positive train control, or PTC.
“A vast majority of our network would be inoperable without an extension,” Amtrak President and Chief Executive Officer Joseph Boardman said in the letter.
The warning by Amtrak, whose trains carry nearly 85,000 passengers a day, marks the latest effort by the railroad industry to pressure Congress into granting an extension by warning of widespread disruption should lawmakers fail to act.
House lawmakers proposed legislation last month to extend the PTC deadline for at least three years.
Boardman said service would continue on track that Amtrak controls, including much of its busy Northeast Corridor between Washington and Boston. But sections of the corridor will not be in compliance by Dec. 31, including 56 miles (90 km) of track between New Rochelle, New York, and New Haven, Connecticut, that is owned by the regional commuter service Metro North.
Amtrak expects to begin notifying customers of possible suspensions on Dec. 1.
Boardman said most of Amtrak’s 21,000-mile national network is owned by other railroads.
(Reporting by David Morgan; Editing by Diane Craft)
View the original article here.
]]>You could even say that some Facebook users use their accounts as diaries, describing what they’ve done, where they’ve been, and how they feel.
It’s highly doubtful, though, that these users would be disclosing such information if they knew who could access it.
According to a recent Reuters review of Westlaw’s database, police warrants for Facebook data is very common, and becoming only more so.
The first question you’d ask is, “can police really do that?”
The short answer is “yes.”
As long as there is probable cause to believe that a crime has been committed, law enforcement will probably be able to get a warrant to search through a user’s Facebook data.
Technically, there still needs to be probable cause that evidence of such a crime could be found on Facebook, but with how much personal information the general populace shares on Facebook today, a warrant would rarely be denied on these grounds.
In addition, neither Facebook nor the state need inform the user of the warrant.
Okay, so now that we’ve established that law enforcement can dig through your Facebook info without your knowledge, what can they access?
Everything you put on Facebook.
Specifically…
So, even if a user does not expressly disclose any private details of a crime on Facebook (it amazes me how many people actually do), law enforcement can have access to a record of where you were, and when.
But even if law enforcement can’t get that data from your profile, it can comb through many of your friends’ profiles, if the abovementioned probable cause exists (which it usually does).
There are several signs that point to Facebook’s voluntary complicity in the process.
Most notably is the existence of a guide* for law enforcement agencies requesting information from Facebook that seems to have been prepared by Facebook itself (although the company would not confirm the document’s authenticity).
While the practice is against Facebook’s business interests, since it would encourage people to minimize their Facebook usage, there’s really nothing Facebook can do about it.
Realistically, to completely stop the practice would take legislation on the national level that specifically prohibits any information from any social networking sites from being used by law enforcement.
While anything’s possible in the future, we probably won’t see such legislation anytime soon.
So what can users do now to protect themselves?
The most obvious answer is to simply not commit a crime.
Unfortunately, though, that may not be enough, since you can’t control what your Facebook Friends do.
Ultimately, the only certain method to insulate oneself is to simply not use Facebook.
Of course, to many people, life without Facebook is far worse than the most obtrusive invasion of privacy.
Originally published on Saturday, July 18, 2015
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