Marriott sues hotel for converting migrant shelter

Marriott filed an interesting lawsuit against the owners of what was supposed to become a Marriott franchise hotel, after the owners decided to turn the property into a migrant shelter.

Aloft & Element near New York JFK becomes migrant shelter

Marriott has filed a $2.6 million lawsuit against the owners of a New York hotel in Queens near JFK Airport. The 283-room hotel was set to open to the public in November 2023, under the dual brand Aloft and Element.

There aren’t a lot of hotels near JFK airport, so this was a significant addition to Marriott’s portfolio. This deal was actually signed in 2015, so this property has been a long time coming for the Marriott brand because there were construction delays and then the pandemic hit.

But in August 2023, just months before the planned opening, the hotel owners appear to have changed their minds. The decision was made to turn the property into a migrant shelter, through a “lucrative” deal. The hotel owners did not even remove the Marriott signs and branding, or pay the franchise fee, further violating the agreement with Marriott.

Marriott reportedly tried to reach an agreement with the hotel owners that would allow it to continue to collect commissions for the arrangement, but it was apparently rejected by the owners, leading to this lawsuit. They seemed to think they could simply end their agreement with Marriott.

In recent years, dozens of New York hotels have stopped hosting tourists and have made deals with the government to become shelters for migrants. To date, more than one in five hotels in New York City are shelters, and nearly half of the hotels around JFK Airport are as well.

These lodging contracts have become lucrative for the owners of many properties, especially since New York’s hotel market has been relatively slow to recover.

The city reportedly pays anywhere from $55 to $385 per night for these rooms to be used as shelters, so you can quickly see how this becomes a lucrative revenue stream for hotel owners, especially considering the guaranteed and consistent occupancy that hotels can achieve through this arrangement.

The property’s owners defended themselves by saying it was not “economically viable” to operate as a hotel, given “the poor state of the economy and the continued downturn in the hospitality sector.”

Marriott seems to be right here I think?

I’m not writing about this because I’m trying to get into a political debate, but rather I find it an interesting situation. I’m not a lawyer, of course, although at first glance it seems to me that Marriott has a case to make here.

While the lawsuit contains some details about what the contract looked like when it was signed, it does not contain all the details. My non-lawyer guess would be that:

• If a hotel does not reopen (whether due to foreclosure, market changes or otherwise), the hotel will not be required to pay any fees to Marriott.
• If a hotel decides at the last minute to change brands and join another hotel group, it will have to pay early termination fees, which is a breach of contract.
• This is a unique situation, however, as the property does not operate as a hotel, but rather has embarked on a different business, operating as a refuge, which is a completely different concept.

When these contracts were signed, I suspect the concept of turning a hotel into a retreat was not explicitly discussed and probably wasn’t on the radar. I think it’s fair that Marriott is entitled to something here, given that the property was built entirely to Marriott’s specifications, including the design.

In conclusion

Marriott is suing a potential franchisee for $2.6 million after the owners abandoned their dual-ownership plan for Aloft and Element and instead turned it into a shelter for migrants. Large hotel groups are embroiled in endless lawsuits with hotel owners, given the number of contract disputes.

However, I have to imagine that a hotel owner’s decision to turn a Marriott into a shelter is one of the more unusual cases of lawsuits, ones that may not be explicitly addressed in these contracts. I’m curious to see what happens, or if a private settlement ends up being reached.

What do you think about this lawsuit against Marriott?