Selling a hotel: the complete guide, from valuation to completion

Selling a hotel means selling a property, a trading business, a team and a client base all at once. A buyer is not paying for square metres: they are paying for the ability to generate earnings, in a given building, under a given legal framework. This guide follows a sale from the seller’s side, in the order the questions arise in practice. Where a more detailed guide exists, each step links to it.

Deciding and preparing to sell

Be clear about the reason

The reason for selling shapes everything else: the deal structure, the timetable, the type of buyer and the level of confidentiality required. The most common situations are:

• family succession or retirement, with no successor in the family
• restructuring of personal or family assets, for example separating the property from the operation
• a group or investor disposing of assets to refocus its portfolio
• a need for liquidity to fund another project, whether or not the seller stays involved in the operation
• a wave of capital expenditure the owner does not wish to fund: compliance works, refurbishment, repositioning

Buyers will ask. The answer must be accurate and presented neutrally (“restructuring of family assets”, “portfolio refocusing”). A vague reason invites suspicion about the asset itself.

Set a realistic timetable

A sale is prepared before anyone is told about it. Buyers generally analyse the last three financial years: one year distorted by exceptional costs, an unresolved dispute or interrupted works colours their reading of the whole period. Ideally, preparation starts one or two financial years before going to market: put right what can be put right, document past works, settle disputes, secure the lease or the brand agreements.

The timetable also depends on external constraints: the expiry date of the commercial lease, the end of a franchise or management agreement, the seasonality of the business, and when the current year’s accounts will be available. The guide Preparing a hotel sale covers this groundwork in detail.

Assemble your advisers

A hotel sale involves several professions, each with a distinct role:

• the sell-side adviser, appointed by the seller, who values the asset, prepares the documents, selects buyers, leads the negotiations and coordinates the other advisers
• the notary (notaire), whose involvement is required whenever the property is sold, and who is often instructed on the business as well
• the lawyer (M&A, commercial leases, employment, tax), who drafts or reviews the transaction documents and warranties
• the chartered accountant, ideally a specialist in hotels and restaurants, who makes the accounts reliable, documents the adjustments and prepares the tax position

Bringing them in early avoids discovering an obstacle at contract stage that could have been dealt with beforehand. RR Hôtels & Finance acts exclusively for the seller, under an exclusive mandate, and never represents both parties to the same transaction.

Valuing the hotel

What drives value

A hotel is valued first on its trading performance. The indicators every buyer recalculates are occupancy, average daily rate, RevPAR, revenue by department and EBITDA (EBE in French accounting). Reported EBITDA is then adjusted to reflect a normalised operation: owner’s remuneration brought into line with the market, intra-group rent replaced by a market rent, exceptional costs or income stripped out. Each adjustment must be supported by evidence. An investment committee will recalculate every one of them and discard those that are merely convenient.

Next come the factors that determine how durable those earnings are:

• the property: location, condition of the building, floor areas, potential for extension or change of use, planning position.
• the lease, if the operator is a tenant: unexpired term, rent as a share of revenue, indexation, allocation of service charges and major repairs, assignment and landlord consent clauses.
• key contracts: franchise, management agreement, distribution, with their expiry dates and exit terms.
• CAPEX: works completed, works required, fire safety and accessibility compliance, requirements linked to the star rating or the brand. A forthcoming works programme will, one way or another, be deducted from the price offered.

The guide CAPEX, compliance and star rating looks at this last point in depth.

The methods, in principle

No single method is sufficient. A sound valuation combines several and explains the differences between them:

• capitalisation of trading earnings, applying a multiple to adjusted EBITDA or a yield to the income available to the property.
• discounted cash flow, based on a business plan and an exit value. It makes the growth and capital expenditure assumptions explicit.
• capitalisation of rent, for property let to an operator: value depends on the rent, the tenant’s covenant strength and the remaining fixed term.
• comparable transactions, expressed in particular as value per room, which are useful as a cross-check provided the assets really are comparable (category, location, tenure, condition).

The valuation should arrive at a price that can be defended in front of a buyer who will run their own numbers. An asking price set too high drags out the marketing and exposes the asset. A price set too low cannot be recovered. The guide How a hotel is valued sets out the methods and indicators.

Choosing the structure: property, business or shares

The same economic transaction can take several legal forms. The choice affects the price, the tax position, the warranties, the timetable and the range of potential buyers.

The main structures

• Property and business: the seller sells both the property, or murs, and the trading business. This is the most straightforward configuration for an owner-operator buyer or an investor who wants control of the whole.
• Business only: a tenant operator sells their hotel business, or fonds de commerce, which comprises the goodwill, trading name, furniture and equipment, and the leasehold interest. Where the lease requires the landlord’s consent, that consent drives the timetable. See the guide Selling a hotel business held under a commercial lease.
• Shares: the seller sells the shares of the company that owns the hotel (property, business or both). The buyer takes over the company with its history, its contracts and its liabilities.
• Sale and leaseback: an owner-operator sells the property to an investor and stays on as tenant. Capital is released without leaving the operation, in exchange for a rent that will now weigh on EBITDA.

Comparison table

The tax rules for each structure (registration duties, taxation of the capital gain, latent tax within the company sold) depend on the seller’s circumstances and change over time. They should be quantified by the notary and the tax adviser as at the date of the transaction, before a structure is chosen. The guide Property, business or shares compares the options in detail.

Preparing the sale documents

A complete, consistent set of documents shortens the exchanges, limits renegotiation and builds confidence. It comprises four items, released in this order.

The teaser

The teaser is an anonymous presentation of two pages at most. It describes the transaction, the category, capacity and figures in ranges, a location at regional or metropolitan level, and four or five verifiable key points. It contains no address, no recognisable photograph, no identifying brand and no name of the seller or the operator. Before it goes out, someone who knows the local market should check that the hotel cannot be identified from the booking platforms.

The information memorandum

The information memorandum is released only once an NDA has been signed. It presents the asset, its market, its trading over several years, the EBITDA adjustments, the legal and property framework, the scope of the transaction, the price and the process. Each copy is personalised, numbered and watermarked with the recipient’s name. Known issues are disclosed in it: an issue uncovered in due diligence costs more in negotiation than one disclosed upfront.

The business plan

The business plan projects trading over several years: occupancy, average daily rate, revenue, EBITDA, capital expenditure. Its assumptions are listed and sourced. It promises nothing: it shows that the seller knows the asset and its levers (repositioning, unused space, distribution, change of brand).

The data room

The data room holds the documents the buyer will review during due diligence: corporate records and governance, title deeds and lease, fire safety reports and surveys, accounts and management reporting, contracts, an anonymised staff register, tax position, permits and disputes. It opens at a late stage, to buyers already selected. Access is personal and logged. The guide The data room in a hotel sale gives a standard index.

Protecting confidentiality

A rumour that a hotel is for sale weakens it: staff departures, nervous group clients, competitors reacting, suppliers renegotiating. Confidentiality is not a formality: it protects the value of the asset throughout the process.

The ground rules

• Nothing without an NDA. A non-disclosure agreement is signed by each buyer before any identifying information is shared. Among other things, it prohibits any direct contact with the hotel, its staff, its operator, its landlord, its franchisor, its banks and its clients.
• Restricted distribution. No public advertisement, no property portals, no mass mailing: buyers are approached one at a time, and every document sent is logged.
• Two-stage disclosure when staff must not know: the teaser and memorandum remain anonymised. The hotel’s name, address and photographs are released only at the viewing or letter of intent stage.
• Discreet viewings, organised by the seller’s adviser at times agreed with the seller, with no contact with staff.

Informing employees in advance

When a business, or a majority stake in certain companies, is sold, French employment law may require employees to be informed beforehand so that they can make an offer (the so-called “loi Hamon” regime). Its scope, timing and procedure depend on the size of the company and the structure of the deal. This obligation should be built into the sale timetable from the outset, with the lawyer, so that legal compliance and confidentiality can be reconciled. The guide Selling without weakening the operation covers this topic and the management of staff during the process.

Selecting and qualifying buyers

Selecting, not broadcasting

An off-market process does not aim for the largest number of buyers, but for those with an objective reason to buy this particular asset. Selection is based on declared criteria:

• segment: category, positioning, business or leisure clientele
• size of the intended transaction
• location sought
• structure targeted: property and business, business only, shares, let property
• holding period

Profiles vary: a hotel group adding to its network, an independent operator expanding, an institutional investor or insurer looking for let property, a family office, private banking clients. RR Hôtels & Finance selects buyers from its Cercle on these criteria, then approaches them one at a time, once an NDA is in place.

Checking capacity and identity

An interested buyer is not yet a credible one. Before opening the data room or accepting an offer, the seller’s side needs to verify:

• financial capacity: financing plan (equity and debt), a letter from the bank, proof of funds authenticated bank to bank.
• identity, including that of shareholders and ultimate beneficial owners. Transaction professionals are subject to anti-money laundering and counter-terrorist financing obligations (KYC / AML-CFT): these checks come before any buyer is selected.

These steps weed out early the candidates who would not see the deal through, and protect the seller from granting exclusivity to a party that cannot pay.

Negotiating: letter of intent, exclusivity, warranties

The letter of intent

The letter of intent (LOI) sets out the offer. To be comparable with others, it should state:

• the identity of the buyer, its shareholders and its ultimate beneficial owners
• the price offered and the scope (property, business, shares), with the price mechanism for a share deal
• the financing plan and proof of funds
• the conditions precedent requested and the due diligence planned
• the timetable to completion and the length of exclusivity sought

Price is only one criterion. A slightly lower offer, funded from equity, with few conditions and a short timetable, is often worth more than a higher offer laden with uncertain conditions.

Exclusivity

The seller usually selects a single counterparty and grants it a time-limited exclusivity period, during which it carries out its due diligence. This period should be short and structured: a due diligence timetable, a list of questions, a deadline for the binding offer. During exclusivity the seller can no longer play buyers off against each other, so it should be granted only to a qualified buyer.

Conditions precedent

Conditions precedent make the sale dependent on external events: obtaining finance, landlord’s or franchisor’s consent, clearance of pre-emption rights, a permit being granted. The seller’s interest is to keep them few, to define their content and deadlines precisely, and to provide for what happens if they are not met.

Warranties in a share deal

In a share deal, the buyer takes over the company’s liabilities. It will therefore ask for a warranty and indemnity, or garantie d’actif et de passif: the seller undertakes to compensate the buyer if an undisclosed liability arising before the sale comes to light afterwards. The points negotiated are the cap, the de minimis threshold, the duration, the scope (tax, employment, environmental) and any security for the claim (bank guarantee or escrow). A thorough data room narrows the warranty: what has been disclosed can, in principle, no longer be claimed.

The share price is derived from the value of the asset, adjusted for net debt and working capital. Two mechanisms are used: an adjustment based on accounts drawn up at completion, or a price fixed on earlier reference accounts (locked box), with covenants on how the business is run until transfer. The latent tax on the company’s assets is also negotiated.

Signing: preliminary contract, SPA and deed

The preliminary contract

For property, the sale generally goes through a preliminary contract (a unilateral option or a bilateral promise to sell) signed before the notary, with a deposit paid by the buyer into escrow. For shares, the parties sign a share purchase agreement setting out the price, its adjustment mechanism, the warranties, the conditions precedent and the conduct-of-business covenants until completion. For a business, the deed of sale may be signed directly or preceded by a preliminary agreement.

The preliminary contract is binding: everything negotiated in the letter of intent must appear in it, without ambiguity.

The interim period

Between signing and completion, the seller remains responsible for running the hotel. Conditions precedent are satisfied one by one: finance, consents, clearances. The seller refrains from any decision that would alter the asset without the buyer’s agreement (a significant new contract, works, a key hire).

Completion and who does what

• The notary drafts and executes the deed of sale of the property, checks the mortgage and planning position, clears pre-emption rights, collects the duties and registers the transfer at the land registry. The notary is often involved in the sale of the business as well.
• The lawyer drafts or reviews the share purchase agreement, the warranty and indemnity, the assignment of contracts and employment matters, and handles the formalities specific to shares and to the business.
• The chartered accountant prepares the reference or completion accounts, checks the price adjustments and prepares the tax filings arising from the sale.
• The sell-side adviser runs the timetable, keeps track of conditions and documents, and makes sure the final deed reflects the deal negotiated.

At completion (closing), the price is paid, ownership passes and the buyer takes over the operation.

Key takeaway: a hotel’s value is defended before it goes to market, through clear accounts, complete documents and a structure chosen with full knowledge of its consequences. Confidentiality and buyer qualification protect that value all the way to completion.

After signing

Telling the team

The announcement is prepared with the buyer before completion: who speaks, in what order, with what message. As a rule, the hotel’s management is told first, then the whole team, and finally partners and key clients. Depending on the structure, employment contracts either transfer to the buyer under French employment law or remain with the company sold: the message should say so clearly to avoid departures.

Handover

The handover is governed by the contract: how long the seller stays on to assist, introductions to partners and group clients, transfer of supplier contracts, subscriptions, distribution accounts and licences. In a share deal, price adjustments based on completion accounts follow within weeks, and the warranty and indemnity runs for the agreed period. The seller keeps a complete file of the transaction throughout that time.

To approach a hotel sale on this basis, from valuation through to completion, you can find out more about our hotel sale advisory service.