First of three on management agreements. This one is about the fee. The second puts a P&L behind it. The third is what I read first in the contract.
Short-term rentals grew up on one number. Fifteen, twenty, twenty-five per cent of revenue, gross or net depending on who was asking, and that was the whole fee.1
It suited the business it came from. One owner, one flat, a manager who took a cut of what came in. The manager's costs were their own: the people answering guests, the pricing, the channel accounts, the software. The owner paid for cleaning, utilities, repairs and commission, and kept what was left. Nobody needed a page of definitions to explain it, which is most of why it spread.
Then the same fee arrived on buildings, and nobody changed its shape.
What the percentage is actually taken on
Ask an operator what the fee is calculated on and the honest answer is usually "the net". Meaning the room rate, not everything the guest pays.
That distinction is doing more work than it looks. The guest sees one price. Inside the operator's system that price is split: a room rate, and a check-in fee that is meant to cover cleaning, linen and amenities. The guest never agreed to that split and in most cases never sees it. It is an internal pricing decision.
So the operator decides how much of a single price is room rate, and the room rate is what their fee is calculated on.
Move a few euros from the check-in side to the room side and the fee goes up. The money that moved was the money meant to pay for cleaning. It has not stopped being needed. It has just stopped being funded, and the shortfall lands on the owner, who never saw the split in the first place.
I am not saying operators do this cynically. Most do it because the room rate is what the market compares and the check-in fee is what nobody shops on, so pushing value to the room side is defensible pricing. But the person making that call is the person paid on the outcome, and that is a structural problem regardless of anyone's intentions.
Why a single percentage breaks on a building
One flat is a business where revenue and profit move together closely enough that nobody notices the difference. A building is not.
A building has energy bills, a lift, a community, insurance, a reserve for replacing what wears out, and a cost base that can move ten per cent in a year without revenue moving at all. Under a single percentage of revenue, none of that reaches the operator. Their income is a function of the top line. The owner's income is what is left after every line.
That is not a fee that is too high or too low. It is a fee pointed at the wrong number.
Two things follow from it, and both show up in a bad year rather than a good one.
The operator is paid the same in a year that lost money as in a year that made money, provided the same rooms were sold. And selling harder always pays the operator, even when selling harder costs more than it brings in. Discounting to fill a February pays the manager on every euro of that discounted revenue while the owner meets the cleaning, the linen and the wear on the flat.
What to ask for instead
Hotels settled this a long time ago, with two fees rather than one.
A base fee on revenue, which keeps the operator running and paid for the work whatever the year does. And an incentive fee on profit, which only pays when the owner is being paid. Usually that means GOP. Sometimes NOI, and which one depends on who is carrying the rent, the capex and the debt.
The point is not to pay the operator less. Done properly it costs about the same in a normal year, which is the test of whether you have restructured a fee or just cut one. The point is that in the year the building has a problem, the operator has the same problem.
Whether that difference is worth arguing about is a question you can only answer with numbers, so the next piece is a P&L: one building, one cost shock, both fee structures, and what each one leaves the owner.
Notes
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From ten years of negotiating these, on both sides of the table. That range is what the market did, not what any published standard says, so read it as one operator's experience rather than a rule. ↩