Hotel Management and Brand Licensing Agreements in China for Foreign Hotel Groups

The following is general information on hotel management, brand licensing and related Chinese law, not legal advice for a specific agreement. Every hotel management agreement is negotiated against the owner, the flag and the site; consult qualified PRC counsel before signing, amending or terminating one.

The HMA is a mixed contract under the Civil Code

Hotel deals in China are rarely captured in a single named contract. A hotel management agreement bundles three distinct relationships — management services, a trademark and brand licence, and technical services such as pre-opening support, design review and reservations systems — into one instrument, sometimes with franchise elements. The PRC Civil Code, in force since 1 January 2021, treats such agreements as innominate contracts: under Article 467 they are governed by the general rules of the contract part and, where relevant, by the provisions applicable to the most similar named contract, typically entrustment (mandate) for the management function, technical services for the pre-opening and systems work, and licence for the brand.

The classification matters. In a management agreement the operator runs the hotel for the owner against fees while the owner carries the operating risk and owns the asset; in a franchise the owner operates under the brand with far less operator control; a bare brand licence is narrower still. Most China arrangements are management agreements with a licence component, and the label drives fee structure, tax treatment, liability and termination rights — so it should be stated expressly rather than left to inference.

The clauses that decide the economics

• Base and incentive fees. The base management fee is typically a percentage of gross operating revenue and the incentive fee a percentage of gross operating profit, but the definitions do the work: exclusions from "gross revenue" — taxes, service charges, third-party revenue — and the allocation of central costs are where disputes begin.
• Performance tests. GOP or RevPAR thresholds with cure periods, against a defined competitive set; a failed test can trigger termination or fee conversion, so measurement methodology, currency and cure rights must be fixed.
• Brand standards and CAPEX. The owner's obligation to fund maintenance to brand standards, the operator's approval rights over renovations and rebranding, and the consequences of under-investment.
• Systems and data. Ownership of the property management system, loyalty-programme and guest data, compliance with the Personal Information Protection Law, and the handback of data on exit.
• Centralised services. Reservations, marketing, purchasing and IT supplied by the group, with fees and the terms on which access ends.

Termination, exit and liability allocation

Exit terms are tested as often as the operating terms. The HMA should address term and renewal, termination for cause (non-payment, insolvency, loss of the required licences), termination for convenience and the owner's early-termination rights, usually against a compensation formula. On exit, the mechanics matter as much as the trigger: de-linking the brand, removal of signage, handover of guest data and staff, and any non-compete or non-solicitation.

Liability needs the same precision. The operator will seek caps with carve-outs for wilful misconduct or gross negligence; the owner will seek indemnities for third-party claims from guests and suppliers; and force majeure is governed by Articles 180 and 590 of the Civil Code. One drafting caution: under Article 585, a court may increase or reduce agreed liquidated damages to reflect the actual loss, so a punitive figure will often be trimmed — the safer approach is a measured, evidence-friendly number plus specific indemnities.

Foreign investment and real estate — mostly open, but watch the edges

Hospitality is not on the foreign-investment negative list. A foreign hotel group may establish a wholly foreign-owned management company in China to enter management agreements, or a joint venture with a Chinese developer, and the Foreign Investment Law of 2019 applies national treatment to the sector. Two edges need attention. First, foreign investment in real estate: the rules on foreign institutions acquiring Chinese real estate restrict purchases to self-use properties and impose payment conditions, and although these have been relaxed in pilot zones and special areas, the position varies and is subject to the latest official rules. In practice foreign groups rarely buy the hotel real estate; the Chinese owner holds the land-use rights and building, and the group supplies the flag and the management. Second, operations: the Chinese operating entity must hold the hotel's own licences — public security registration, food, fire safety and related permits — which sit with the owner or the operating company, not the foreign brand.

Protect the brand before you hang the flag

• File first at the CNIPA. China is a first-to-file jurisdiction. Register the English mark and, critically, a Chinese-language version and any common transliteration, in Class 43 (hotel and restaurant services) together with Classes 35, 36 and 41 where relevant.
• Put the licence in writing and record it. Trademark licences must be in writing under the Trademark Law, and recording the licence with the CNIPA strengthens the licensee's standing to act against infringers.
• Defend against squatting. Use the opposition and invalidation routes — including Trademark Law Article 4 against bad-faith filings without intent to use and Article 32 against pre-emptive registration of a mark already in use with a certain influence — and non-use cancellation against dormant marks.
• Write the IP controls into the HMA. Define the licence scope, quality control, sub-licensing, automatic termination of the licence on exit, and the owner's duty to assist in enforcement.

Dispute resolution — arbitrate, and choose the seat

Hotel disputes in China are conventionally resolved by arbitration, most often under CIETAC rules in Beijing or Shanghai, with HKIAC and SIAC common for cross-border groups. The choice turns on enforceability: China is a party to the New York Convention, so foreign awards are enforceable in China and Chinese awards abroad, which means the seat should be chosen with an eye to where the assets will be when a dispute arises. PRC law governs most management agreements, and a bilingual agreement with the Chinese text prevailing is standard. Interim relief should be planned at signing: asset preservation through the Chinese court in aid of arbitration, and injunctive relief to stop continued use of the brand after termination. Finally, enforcement is only as good as the defendant's assets, so guarantees — parent guarantees and bank guarantees — should be obtained at the outset, not after a breach.

For the specific risk of a partner or third party registering your brand in China, see our guide to trademark squatting and bad-faith filings in China, or contact our dispute resolution practice to review or negotiate a hotel agreement.

The provisions summarised here are current as of the date of writing; real-estate, licensing and trademark rules are subject to the latest official versions, so confirm the operative requirements with qualified PRC counsel for any specific agreement.