Hotel Management Agreements in Saudi Arabia: An Owner's Guide

A hotel management agreement (HMA) is the contract under which an owner appoints an operator to run a hotel or serviced-apartment property on the owner's behalf. The owner typically keeps ownership of the asset, the revenue and most of the financial risk; the operator runs day-to-day operations and is paid fees for doing so.

That structure makes the agreement the single most important document in the relationship. This guide covers the terms owners should understand before signing, and the Saudi regulatory points that affect how the agreement should be drafted.

This article is general guidance, not legal advice, and not a template. Have any agreement reviewed by a lawyer qualified in Saudi law.

Management agreement, lease or franchise?

Before negotiating terms, confirm that a management agreement is the right model:

Model	Who runs the hotel	Who takes the operating risk	What the owner receives
Management agreement	The operator, on the owner's behalf	Mainly the owner	Operating profit after fees
Lease	The tenant-operator, in its own name	Mainly the tenant	Rent
Franchise	The owner (or a third-party operator)	The owner	Operating profit after franchise and other fees

A management agreement suits owners who want to keep the upside and control of the asset but lack the operating capability. A lease suits owners who prefer predictable income over upside.

Saudi regulatory points to check first

The regulatory framework shapes who must hold which licence, and that needs to be reflected in the agreement.

• Facility licence. Under the Tourism Hospitality Facility Regulation published in Umm Al-Qura in September 2026, a hospitality facility may not operate without a licence, and the licensee is a legal entity. The licensee must supervise and control all units in the facility and may not allow others to use its licence.
• Management licence. The Regulation for the Management of Tourism Hospitality Facilities requires a licence from the Ministry of Tourism for the activity of managing hospitality facilities, with different licence categories.
• Classification. Facilities must meet basic classification standards to be licensed and operational classification standards afterwards.

What this means for the agreement: state clearly who holds the facility licence, who is responsible for maintaining it and renewing it, who meets classification obligations, and how the operator's management licence is evidenced and kept valid. Ask the operator for its licence number and category before signing.

Key terms to understand

1. Term and renewal

The initial term and any renewal options. Long terms give the operator stability to invest in the property; they also lock the owner in. Look for renewal that requires mutual agreement or is tied to performance.

2. Fees

Management fees are commonly structured as:

• A base fee, calculated on revenue.
• An incentive fee, calculated on profit, often above an agreed threshold.

Understand exactly what each fee is calculated on, and which costs are deducted before the incentive fee is calculated. A base fee on revenue alone rewards revenue growth even when profit does not follow; an incentive fee aligns the operator more closely with the owner.

Also check for other charges: centralised services, technology, sales and marketing contributions, loyalty programmes, or staff training. Ask for every charge to be listed and its basis defined.

3. Performance test

A performance test allows the owner to terminate if the operator fails to reach agreed targets for a defined period. Owners should look at:

• Which metric is used: operating profit, RevPAR versus a competitive set, or budget achievement.
• How the competitive set is selected and changed.
• Whether the operator has a right to "cure" the shortfall by paying the difference.
• Exclusions for events outside the operator's control.

4. Budget approval

The annual operating budget drives spending and becomes the benchmark for performance. Agree on the timeline for submission, the owner's approval rights, and what happens if the parties cannot agree.

5. Reporting and audit

Define the monthly reporting pack in the agreement: occupancy, ADR, RevPAR, revenue by segment and channel, departmental costs, operating profit, and variance against budget. Include the owner's right to audit the accounts.

6. Owner approvals and operator authority

Spell out what the operator can decide alone and what needs owner approval: senior appointments, capital expenditure, contracts above a threshold, pricing strategy changes, and litigation.

7. Staff

Whose employees are the hotel staff — the owner's or the operator's? This affects employment liabilities, Saudization obligations, and what happens to staff if the agreement ends.

8. Capital expenditure and reserves

How the furniture, fixtures and equipment reserve is funded, who approves its use, and who decides on major renovations.

9. Technology and data

Who owns the guest data, the website, the booking engine and social-media accounts, and what is handed over at termination. This matters more than many owners expect: guest data and direct-booking channels have commercial value.

10. Termination

Termination for cause, for failing the performance test, on sale of the property, and for convenience — and the fees payable in each case. Check the transition obligations: handover of records, systems, data, licences and staff.

11. Disputes and governing law

Governing law, venue, and whether disputes go to Saudi courts or arbitration.

Questions to ask an operator

1. Which licence category does your company hold for managing hospitality facilities?
2. Who will hold the facility licence for this property, and who will renew it?
3. Exactly how is each fee calculated? What other charges will the property bear?
4. What performance test will you accept?
5. What will the monthly reporting pack include? Can we see a sample?
6. Who owns guest data and digital channels, and what happens to them at termination?
7. Which comparable properties do you operate, and can we speak to their owners?

Frequently asked questions

Is a management agreement better than a lease?

Neither is better in general. A management agreement keeps upside and risk with the owner; a lease transfers them to the tenant in exchange for rent. The right choice depends on the owner's appetite for risk and involvement.

What is a typical management fee in Saudi Arabia?

Fees vary by operator, property type, size and scope of services. Compare the full fee structure, including other charges, rather than a single headline percentage.

Can I terminate if the operator underperforms?

Only if the agreement gives you that right, usually through a performance test. Negotiate the test before signing.

Does the operator need a licence?

Under the Saudi framework, managing tourism hospitality facilities requires a licence from the Ministry of Tourism. Verify the operator's licence and its category.

Next step

If you are reviewing options for operating a hospitality property in Saudi Arabia, you can contact the Mirada team.