Franchise Agreement In Hotels


Whether you`re thinking of developing a hotel or buying a hotel to maximize your revenue per available room (and get capital and financing investors), you`ll probably go to one of the hotel`s leading brands to “house” your hotel with a suitable hotel brand. The document that formalizes your rights and obligations is referred to as the hotel`s “licensing agreement” or “franchise agreement.” For many homeowners, their understanding of this important agreement does not go beyond the fundamental economic conditions of royalties, “protected areas”, duration and possibly “key money”. The franchise agreement is a licensing agreement between the hotel owner and the hotel brand, which defines the owner`s rights and obligations to operate the hotel under the brand or “flag” for a fee. Franchise agreements are essentially licenses, which means they are personal and cannot be awarded by the current owner. These agreements are developed by hotel brand companies and are very one-sided. This article will demystify this critical document by: (1) generally describing what franchise agreements are; (2) grouping some of the main conditions under the hotel`s franchise agreements; and (3) proposals on terms that can be negotiated with the franchisor/hotel brand. How does an owner choose between a franchise agreement or a management contract? The decision can be made on the basis of many factors, but in general, a franchise agreement is the best for an owner who wishes to have a “hands on” stake in the day-to-day running of his hotel. This person may already be an experienced hotelier. In the hotel sector, hotel groups such as AccorHotels, IHG, Marriott or Hilton are mainly asset light. This means that these groups do not own, hotels that bear their mark. For example, you`ll be surprised to learn that the Holiday Inn across the street is not owned by IHG, the Sheraton where you stayed for your last vacation, does not belong to Marriott and AccorHotels does not own the Novotel where you had your last business meeting. Before entering into an agreement, Watson recommends a thorough review of the proposed market. “Always start by making sure the market is viable.

There are a lot of factors in terms of supply/demand, who the players are, what brands are there, how strong the competition is, the economic growth and a variety of things,” he says. Brand positioning is also an important aspect. “Over the past five years, there has been a trend towards building industry in terms of people`s development, with Midscale [and] upper average levels being very expensive in the market and without any returns.” Hanuka regularly agrees on the use and exclusivity of problems and are important factors to be taken into account during negotiations. He gives an example: “A particular brand on Site A has a certain territory, say a mile, and the franchisor [maybe] tomorrow or a few years of operation requires a new brand, and it is a slightly different segment in the market, but there is a clear overlap. And this franchisor puts a new hotel across the street, or just around the corner, with the new brand, and the existing franchisee says, “Wait a minute, I`m going to lose a certain percentage of my clientele.” Can the franchisor do this? Well, according to the text of the exclusive agreement, yes.¬†One way or another, when it comes to forking out the provinces, it is important to be aware of individual laws, including property laws in the provinces concerned.

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