Hotel Franchise Ownership
Looking back at the last few years, we can only notice that there has been a wonderful increase in the use of franchise agreements instead of the usual management agreements. This increasing movement can mean new opportunities or pitfalls for the franchisers.
If you franchise you will get some very attractive chances:
- You will be able to save money and time.
- Your brand will get presented more often.
- Fiduciary duties and liabilities will be eliminated.
- You will provide yourself with a income of franchise fees.
- Marketing revenues will be collected by you.
- A franchise agreement will need less negotiations and monitoring than management agreements.
- As a franchiser you don't have any set obligations, an agreement between franchiser and franchisees will often state that the services that have been contemplated by both parties rests in the marketplace.
- Your franchisees will not be able to end the agreement when services are not provided by the franchiser If the agreement is terminated it usually involves a rather large termination fee.
- There will be no performance discipline because there are no incentive fees.
- A franchisee has to maintain brand standards or suffer losses and eventually the agreements can be terminated.
When dealing with a potential franchisee, the franchiser has the obligation to give a UFOC (uniform franchise offering circular). The franchiser has to provide this to every potential acquirer.
This circular describes all important things like the success factors, how much the franchise will cost, a copy of a standard franchise agreement, information about the franchiser.. UFOC's are meant to be a tool to help the potential franchisee to sit down and think about what all the possibilities are. The franchiser will of course interview more than one potential acquirer and will make site visits.
Lately more and more standard agreements are being used, but lots of franchisers will be able to negotiate with the franchisees about the next items: fees, property improvement plans, unique hotel characteristics, termination, territorial restrictions, guarantees, transfers and assignments and the approval of management companies.
If you are really considering hotel franchising, you should get advice from some advisors or professionals. They will be able to help you negotiate terms before a draft agreement is written out. You will have to get your input at the outset, otherwise you will miss out on some great opportunities.
Use the following list as a guideline for things that really should be negotiated about, if you are trying to avoid pitfalls.
- The right of the franchisee to use management, telecommunication... that are not provided by the franchiser.
- The chance to compete with other hotels by operating independently.
- The obligation of the franchiser to respect the privacy of the franchisee and to keep all information confidential.
- When and how costs and program fees will be increased.
- To reduce the liquidated damages when the agreement is terminated.
- To put a limit on the audit rights of the franchiser
If the franchise agreement is thoroughly discussed by the franchiser, the franchisee and some advisors, it will surely be a successful agreement that will satisfy all parties.