Lease vs Revenue Share Calculator

Three ways to earn from your hotel property

If you own a hotel building but do not want to run it yourself, operators in India usually offer one of three deals. This calculator puts all three side by side over five years so you can see the money and the risk before you negotiate.

• Fixed lease: the operator pays a fixed monthly rent, usually with an escalation every year or every three years. You earn the same whether the hotel does well or badly, as long as the lessee pays.
• Revenue share: the operator runs the hotel and pays you an agreed percentage of total revenue. Your income rises and falls with sales, but you do not carry operating costs.
• Management contract: a brand or management company runs the hotel for you. You keep the profit after paying a base fee on revenue and an incentive fee on GOP, so you carry the operating risk.

How to use the comparison

Start with a realistic year-1 revenue and GOP margin for your property. If the hotel is already running, use last year's audited figures. A new property should use a conservative estimate. Then change one input at a time. You will usually see that the management contract pays the most in good years and the least in bad years, while the lease is the most predictable.

Points to check in any agreement

• Lock-in period, notice period and exit penalties for both sides.
• Who pays for repairs, renovation, furniture replacement and licences.
• Security deposit, rent-free period and how escalation is calculated.
• For revenue share, the exact definition of revenue: is GST, service charge or OTA commission excluded?
• Reporting: monthly revenue reports and the right to audit.

To check how much profit the property can really generate, model it with the hotel budget calculator and compare valuations with the hotel valuation calculator. Always have the final agreement reviewed by a lawyer and your CA.

Frequently asked questions