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What to consider when negotiating or drafting catering agreements

As seen in the November edition of the QHA Review.

As Melbourne Cup Day is coming up, and the festive season will be here before we know it, we thought it timely to provide a refresher on catering agreements, as there are a number of options available to hotels looking for flexibility in their food offering, and several key considerations that must also be addressed when entering into a catering agreement.

Types of Agreements

Generally, there are two types of catering agreements. The first involves the caterer paying a fixed fee to the hotel licensee for the right to use the premises, and the caterer then receives the full profit from all food sales. The second option is for the hotel licensee to pay a fixed fee to the caterer, and the hotel licensee then receives any profit from the food sales. 

When deciding which avenue you wish to go down, it is important to think about your motivations and those of the caterer. An experienced caterer who is used to providing top tier service may ask to pay a fixed fee so that it receives all profits, and while you may miss out on the financial upside, you can take a more hands-off role when it comes to running the food operation. A less experienced or smaller caterer may be happy to receive a fixed payment, and while the service may not be as good, you will retain the benefit of the profits, and perhaps also greater control over the food offering in a more involved way. 

Key Considerations

For licensees considering entering into catering agreements, it is important to ensure that any such agreement includes minimum standards in terms of the quality of food, trading hours and pricing, as these factors will impact on the hotel’s performance and reputation. It is also important that licensees consider who is responsible for the payment of operating expenses, insurance, electricity, gas and other outgoings associated with the operation of the kitchen.

As a caterer cannot sell or take orders for liquor at your premises, it is critical to ensure that all monies from the sale of liquor are kept separate to any monies from the sale of food. Another issue that needs to be considered is the employment and separation of staff between the kitchen and the rest of the hotel's operation in other areas.

Other issues that need to be considered are the maintenance and replacement of plant and equipment, ensuring that all food stock and associated expenses are in the name of the caterer, maintenance and cleaning obligations for the premises and whether the caterer has an ability to on-sell or transfer its catering rights or receive a payment for any goodwill generated during the term of the agreement.

OLGR Approval

Although it is technically not a requirement under the Liquor Act or the Gaming Machine Act for a catering agreement to be approved by the OLGR, it is prudent to do so and we always recommend that such agreements be approved to save any headaches down the track. This is important because there are a number of obligations and requirements that must be addressed and complied with in order to ensure that you are not in breach of your obligations under the relevant legislation.

We have prepared many catering agreements for various venues and it is never a “one size fits all” approach. It is important that these agreements are tailored to the specific venue and the specific agreement has been negotiated between the hotel and the caterer.

If you require any assistance in relation to negotiating or drafting a catering agreement for your venue, please contact me on 07 3224 0230.

"The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication."