How to Buy a Hotel -- What You Don't Know about Undocumented Workers Could Really Hurt You!

Oct 17, 12 | 12:05 am

By Jim Butler and the Global Hospitality Group® Hotel Lawyers | Authors of www.HotelLawBlog.com

Buying a hotel -- the Hotel Purchase Agreement documentation and process.

The Hotel Purchase Agreement documentation and process is where fortunes can be won or lost. The hotel lawyers of JMBM's Global Hospitality Group® have decided to share some practical tips we have gleaned over the past 25 years from more than $60 billion of hotel transactions. Initially, these insights will be published as articles on the Hotel Law Blog at www.HotelLawyer.com and then they will be assembled into the HOW TO BUY A HOTEL handbook for our "We wrote the book™ series, much like the HMA Handbook and the Lenders Handbook for Troubled Hotels (see Resource Center at HotelLawyer.com for free copies).

Here is our next contribution to the "Buying a Hotel" series. . . It is a new topic that every buyer should be aware of and consider as part of the due diligence on buying a hotel.

What you don't know about undocumented workers could really hurt you!

By Guy Maisnik | Vice Chair, Global Hospitality Group®

Let's say you are buying a hotel. You have engaged the right legal and due diligence team. One of the items your team is investigating is whether the hotel employees are legally documented. Upon review of the hotel records, your team discovers that there is a fairly high turnover of hourly workers. You know the challenge of attracting and retaining enough good workers.

New focus on the employer, not the employees.

In the past, you may have risked hiring undocumented workers. In practice, only employees were targeted. In many cases, authorities would pull up to a worksite, round up dozens of employees and load them on a bus. However, this indictment in Kansas marked a significant turn of events, with hotel owners now charged with conspiracy to harbor undocumented immigrants for personal gain, five counts of harboring undocumented immigrants and wire fraud.

In other words, this new approach by the Feds suggests:

• Forget the illegal workers

• Bring criminal indictments against owners and

• Seize the hotel where undocumented workers are employed

What are your concerns about your pending hotel purchase?

In this new environment, here are 3 key things you should be concerned about as the owner of a hotel with undocumented workers:

• First, you worry about having documented workers or possibly going to prison and having your hotel or restaurant seized.

• If there are too many undocumented workers, you could possibly have a shortage of workers and need constantly to find new ones. In many hotels, a significant number of employees can be undocumented. What could this cost be to you?

• You have concerns about whether you can legally ask workers for documents without violating their rights of privacy or civil liberties or being accused of discrimination. What safe harbors do you have? Do you need to verify accuracy of any documents you receive? How far beyond the papers can you go/should you go to verify? Are you responsible for forged or phony papers?

What should you do? What can you do?

Under Federal law, employers are required to ensure that their employees are entitled to work in the US and complete form I-9 (Employment Eligibility Verification) published by the Department of Homeland Security. The purpose of form I-9 is to document that each new employee is authorized to work in the United States. Knowingly hiring or retaining an unauthorized alien violates the Immigration Reform Control Act (IRCA). For hiring violations (knowingly hiring or continuing to employ unauthorized alien), fines can run to $11,000 per unauthorized alien, plus additional fines up to $1,100 for failing to maintain necessary paperwork for the I-9 of $110 - $1,100 for each individual for whom the paperwork was not properly kept. There are also civil and potentially criminal penalties.

So you don't step into some problems you don't want when you buy a hotel, here are a few steps you should consider taking as a hotel buyer (and prospective employer):

1. Require that the seller provide you with a complete list of the employees and their corresponding I-9 forms.

2. Require that the purchase agreement contain adequate remedies if a certain number of hotel employees are undocumented. Such remedies could include a credit against the purchase price for the cost of hiring and training a certain number of employees.

3. Prior to closing, smart buyers will typically require that the seller (or operator if the operator is the employer) terminate all its employees. Simply transferring the employees is risky because the buyer would have to trust that the seller correctly prepared form I-9s for all employees. In our experience, when performing due diligence, we rarely see a perfectly prepared set of form I-9s. If the employees are transferred to the buyer, the buyer cannot re-run form I-9s.

In re-hiring, the buyer must comply with IRCA and complete a new I-9 form for each employee. Any form not completed should be rejected. Any employee that cannot provide a completed I-9 form cannot legally be hired.

This all means that you need to pay more attention to the undocumented worker issue and do things right.

It's costly to replace and train an employee. Not having a sufficient number of properly trained employees can lead to loss of services and hurt the hotel's reputation, and hence, a loss of revenue. It can be even more costly and risky for any hotel employer to suffer potential civil and criminal penalties by employing undocumented works. A sophisticated hotel buyer will properly negotiate appropriate remedies in the hotel purchase agreement, perform adequate due diligence and follow appropriate employment procedures to ensure that it is complying with applicable law when re-hiring the seller's or hotel manager's employees.

HOW TO BUY A HOTEL -- Free handbook

Until the free handbook on HOW TO BUY A HOTEL is published (expected in Summer 2014), you can access all the materials on this subject at www.HotelLawyer.com. Look on the right hand side of the home page and click on "Buying & Selling a Hotel."

Here are only a few of the articles on the subject under this topic:

How to buy a hotel -- What you don't know about undocumented workers could really hurt you!

HOW TO BUY A HOTEL Handbook: Franchise issues in hotel purchase and sale transactions

HOW TO BUY A HOTEL Handbook: labor and employment tips

5 Things to remember when buying hotel notes

Hotel Lawyer on 2012: A good year to buy a hotel (and a bad year, if your hotel note is due)

Buying a Hotel? Don't buy an ADA lawsuit or DOJ Investigation

Hotel Lawyer: So,You Think You Want to Buy a Hotel?

About the Author

Guy Maisnik is a hotel lawyer with nearly three decades in commercial real estate transactions. He is a partner and Vice Chair of JMBM's Global Hospitality Group®, a member of the JMBM Chinese Investment Group^TM and a partner in the JMBM's real estate department. Guy advises clients on hotel transactions, representing lenders, opportunity funds, banks, special servicers, owners, REITs and developers in hotel transactions, including senior and mezzanine financing, workout and debt restructure, strategic portfolio acquisitions, co-lender, participation and securitization arrangements, joint ventures, management agreements, buying, selling and ground leasing of hotels, complex mixed used resort development, fractional and timeshare.

For troubled hotels, Guy develops and executes strategies for CMBS and whole loans, and REOs. He also assists investors with recapitalization of distressed borrowers and purchases of troubled assets. Guy has assisted major lenders in revising and structuring their hotel lending programs and documentation, including their hotel construction lending. Guy's practice is both domestic and foreign; he has advised on hotel and real estate matters throughout the United States, Canada, Mexico, South America, Middle East, Caribbean, Western and Eastern Europe, Asia and Scandinavia. For more information, please contact Guy Maisnik at mgm@jmbm.com or +1 (310) 201-3588.
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The news item referred to in the article above is described in greater deal below:

The Kansas City Star Sept. 14, 2012
Charges reveal a new strategy against illegal immigration
By Laura Bauer

After an Overland Park couple were indicted, accused of knowingly hiring illegal immigrants and paying them less than other employees, federal authorities said Tuesday that they would seek to seize the couple's two hotels.

That would be a first in the state of Kansas -- but maybe not the last.

U.S. Attorney Barry Grissom said many businesses across Kansas are under similar investigations.

And if found in violation of the law, those employers, in cities including Topeka, Wichita and Dodge City, could end up facing the same tough consequences that Munir Ahmad Chaudary and his wife, Rhonda R. Bridge, could face: years in prison and loss of their personal assets.

The two allegedly employed the undocumented workers at their two Clarion hotels, one at Interstate 435 and Metcalf Avenue in Overland Park and the other near Kansas City International Airport.

"We want to send a very clear message. ... We are going to enforce immigration laws, and we are going to enforce them equally," Grissom said in a news conference in Kansas City, Kan.

"We're not going to enforce them merely on the backs of (undocumented workers). We are going to go after the people hiring them."

That symbolizes a switch from years past when employees often were the target. In many cases, authorities would pull up to a worksite, Grissom said, round up dozens of employees and load them on a bus. The next day, though, "they would be replaced by other folks," he said.

The indictment marks the government's first attempt to seize a hotel in Kansas in a case involving undocumented workers. That would happen only if Chaudary, 51, and Bridge, 40, are convicted.

For the full story, see http://midwestdemocracy.com/articles/charges-reveal-a-new-strategy-against-illegal-immigration/#storylink=misearch.

This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We've done more than $60 billion of hotel transactions and have developed innovative solutions to unlock value from hotels. Who's your hotel lawyer?

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Our Perspective. We represent hotel lenders, owners and investors. We have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,300 properties all over the world. For more information, please contact Jim Butler at jbutler@jmbm.com or +1 (310) 201-3526.

Jim Butler is a founding partner of JMBM, and Chairman of its Global Hospitality Group® and Chinese Investment Group^TM. Jim is one of the top hospitality attorneys in the world. GOOGLE "hotel lawyer" and you will see why.

Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.

Source: JMBM Global Hospitality Group