Entering into a hotel management agreement (“HMA”) in Dubai is a high-stakes decision for any property owner. The emirate’s hospitality sector operates under a complex regulatory framework overseen by multiple authorities, including the Dubai Department of Economy & Tourism (“DET”), Dubai Civil Defence, the UAE Federal Tax Authority, and various federal labour and data-protection regulators.

While hotel managers oversee day-to-day operations, the ultimate responsibility for legal and regulatory compliance almost always rests with the property owner.

1. Licensing and Regulatory Compliance

One of the most significant challenges for owners lies in licensing and operational compliance.
Hotel operating licences and related permits are typically issued in the owner’s name, which makes the owner directly liable for renewals, record-keeping, and any violations—even when the management company is at fault.

To mitigate this exposure, the HMA should:

• Acknowledge the owner as the licence holder;
• Obligate the manager to comply with all operational regulations and filing deadlines;
• Require the prompt provision of supporting documents; and
• Include robust indemnities and audit rights so that any fines caused by the manager’s actions can be recovered.

2. Financial and Tax Compliance

Financial compliance presents another layer of complexity.
Hotel managers typically collect the Tourism Dirham fee, municipality service charges, and VAT on behalf of the owner. However, it is the owner who remains the taxable person responsible for filings and remittances. Any misreporting can result in significant penalties.

An effective HMA should therefore:

• Require detailed reconciliations and regular tax reports;
• Include warranties regarding the manager’s accounting systems and tax codes;
• Provide indemnities and clear audit rights to ensure transparency and accountability.

3. Health, Safety, and Employment Obligations

Dubai enforces strict health and safety standards under the UAE Fire and Life Safety Code and other municipal regulations. Violations can lead to fines, closures, or costly remediation orders.

The agreement should:

• Assign daily safety compliance duties to the manager;
• Mandate comprehensive record-keeping; and
• Grant the owner step-in rights and cost-recovery mechanisms in cases of manager negligence.

Employment compliance is equally important. If the owner is the employer of the hotel workforce, they are liable for payroll, visa sponsorship, and end-of-service gratuities. The HMA should  clearly specify:

• The employer of record;
• The manager’s obligations under Federal Decree-Law No. 33 of 2021 and MoHRE regulations; and
• Indemnities covering any breach of employment laws.

4. Financial Reporting and Insurance

Transparent and consistent financial reporting is fundamental to every successful HMA. Without it, owners risk revenue discrepancies, tax errors, and operational disputes.

To prevent these risks, the HMA should:

• Mandate standardized monthly and annual financial reports;
• Grant the owner direct access to management and accounting systems;
• Require independent audits; and
• Include data migration and system integration provisions to ensure business continuity upon termination.

Insurance provisions also warrant careful drafting. The owner should be:

• Named as an additional insured on all policies;
• Provided with proof of renewal annually; and
• Protected by clauses excluding liability caps for regulatory fines, gross negligence, and wilful misconduct.

5. Ownership and Management Changes

Changes in ownership or management can trigger regulatory complications. Transfers of ownership or control often require prior approval from DET or other authorities. Failure to secure such approval can affect the status of the property’s operating licences.

To manage these scenarios, the HMA should:

• Require written notice of any change; and
• Mandate cooperation in obtaining regulatory approvals.

6. Data Protection and Cybersecurity

Hotels manage large volumes of personal and financial data, making compliance with privacy laws critical. HMAs must adhere to the UAE Personal Data Protection Law (Federal Decree-Law No. 45 of 2021) and, where applicable, the DIFC Data Protection Law.

Key data-protection provisions should include:

• A data-processing addendum defining roles, transfer restrictions, and breach-response procedures;
• Compliance with global payment-card standards (PCI-DSS); and
• Integration of anti-money-laundering (AML) and counter-terrorist-financing (CTF) obligations under Federal Decree-Law No. 20 of 2018, supported by cyber-insurance coverage and immediate breach-notification duties.

7. Performance Tests and Capital Expenditure

Performance tests are critical owner protections. Without objective benchmarks—such as Revenue per Available Room (RevPAR) or Gross Operating Profit (GOP)—owners risk being locked into underperforming management arrangements.

An HMA should therefore establish:

• Measurable performance metrics;
• Defined cure periods and termination rights; and
• Step-in rights for the owner in cases of significant non-compliance.

For capital expenditure (capex), the agreement should:

• Distinguish routine maintenance from capital projects;
• Create a Furniture, Fixtures & Equipment (FF&E) reserve (typically 3–5% of gross revenue); and
• Require annual capex plans subject to owner approval.

8. Governing Law and Dispute Resolution

The governing law and dispute-resolution mechanism are key strategic considerations.
Many owners choose UAE law and the jurisdiction of the Dubai Courts, while others prefer arbitration—for instance, under the Dubai International Arbitration Centre (DIAC) or DIFC-LCIA—to ensure neutrality and enforceability.

Conclusion

HMAs in Dubai require more than sound commercial terms—they demand a carefully structured legal framework that anticipates regulatory complexity and allocates risk with precision.

Owners who put in place strong legal protections, including indemnities, audit rights, performance standards, and compliance obligations, position themselves to safeguard their investment and maintain operational excellence in one of the world’s most competitive hospitality markets.

Authors: Suzanne Hashem, Legal Director and Khaled Abu Orabi, Senior Associate.