Last week, my partner, Catherine Holmes, participated on the Franchisee/Franchisee Relations panel at the Lodging Conference in Phoenix. Lodging Hospitality's Ed Watkins moderated the panel and reported on the 7 areas where franchisees can negotiate better terms that Catherine identified as critical to owners . His article is reprinted, with permission, below. A few edits and formatting changes have been made to accomodate the blog format.
What's Negotiable in Hotel Franchise Agreements - By Ed Watkins | Lodging Hospitality
There's Lots of Wiggle Room in Licensing Contracts
This article first appeared in Lodging Hospitality and is reprinted with permission. Copyright 2012 Penton Business Media, Inc.
The franchise agreement is one of the most common documents in the lodging industry, and one of the most important. The agreement, often a source of tension between franchisors and franchisees, is ripe for negotiation in a number of areas. A panel at The Lodging Conference last week in Phoenix discussed what's open for discussion--and what's not--before a licensee signs on the dotted line.
The panel, titled Franchisee/Franchisee Relations, included brand company executives, an owner-operator and a lawyer. The lawyer, Jeffer Mangels Butler & Mitchell partner Catherine Holmes, offered a list of seven areas of negotiation hotel owners can explore to reach agreement on a licensing contract. Her list:
"In effect, the brand is issuing a new licensing agreement, said George. "None of us have the time to dig through those UFOCs on a line-by-line basis to see where the changes are."
David Wilner, senior vice president of development for La Quinta, also warned franchisees about potential pitfalls when brands offer to cut or ramp-up royalty fees or to provide key money for development projects. "The brands in demand aren't going to be the ones who offer key money," he noted.
And as George says, accepting key money makes it more difficult for a franchisee to negotiate. "You lose your leverage and often the terms of the agreements are tougher," he said.
As Chris Drazba, vice president, owner and franchise relations for IHG, pointed out, each franchise negotiation is different and needs to be hammered out individually. "Each deal has its own parameters," he said.
"One might be what I call a retail deal, in which you're looking at a basic franchise structure. However, it might be a different situation for a property that's in a hard-to-get-into urban market."
Catherine Holmes is a transaction and finance partner with JMBM's Global Hospitality Group® and Chinese Investment Group™ and specializes in hotel management and franchise agreements, resort and hotel purchase and sale transactions, resort and urban mixed-use financing and development and hospitality asset workouts. With her background in securities transactions, she also assists hotel developers with public and private offerings of securities. For more information, please contact Catherine Holmes at +1 310.201.3553 or firstname.lastname@example.org.
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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