AAHOA 12 Points of Fair Franchising
POINT 1: EARLY TERMINATION AND LIQUIDATED
DAMAGES.
A. Voluntary Buyout Or Involuntary
Termination, and Liquidated Damages:
At the current time, if a franchise agreement is being
terminated by either a Franchisor or Franchisee due to a voluntary
buyout or involuntary termination, most Franchisors are assessing
liquidated damages (LDs) at unfair and unreasonable rates that penalize
the Franchisee. For example, many franchise agreements provide
that the LDs will be calculated based on one of the following
formulas: (1) by assessing a rate of $1,000 to $2,000 for each
guest room of the Facility, or (2) by multiplying the average monthly
Gross Room Revenues by the Royalty Fees payable in the remaining months
of the franchise agreement, multiplied by the number of months until the
Franchisee could have terminated the agreement without penalty, not to
exceed 36 to 60 months.
In the interest of fair franchising, a franchisee
should only have to pay six months of royalty fees. Specifically,
the Franchisee should be required to pay as LDs, and not as a penalty,
the product of the average monthly Royalty Fees paid by the Franchisee
during the prior 12 full calendar months (or the shorter time that the
Facility has been in the system), multiplied by six (6)
months.
Further, in the event of an early termination, if a
Franchisor has paid any “incentive” money to a Franchisee
under the franchise agreement (including, for example, a development
incentive advance, loan, or grant), the incentive money should be
amortized over the total number of months of the term of the franchise
agreement, and the repayment of any incentive money should be based on
the number of months remaining under the agreement.
Commentary:
The current provisions relied on by Franchisors for assessing LDs are
punitive in nature, and not based on a reasonable estimate of the
Franchisor’s probable losses from the early termination of a
franchise agreement. Regrettably, most Franchisors have been
unwilling to negotiate or change such provisions to provide for a fair
and reasonable method of assessing LDs based on, among other things, the
actual amount of monetary losses Franchisors have experienced in the
past as a result of an early termination, or the average amount of time
it will take a Franchisor to replace a terminated
Facility.
AAHOA’s proposed method of limiting the LDs to
six months of average monthly Royalty Fees for the subject Facility is
fair and reasonable because it does not provide one side with a windfall
or an unfair advantage over the other, and it compels both Franchisors
and Franchisees to work together to avoid an early termination.
Indeed, under AAHOA’s method of assessing LDs, a Franchisor will
have six (6) months to locate a replacement Facility of the same or a
similar brand name as the terminated Facility before it faces the
prospect of suffering any losses arising from an early
termination. Moreover, a Franchisee will still be required to pay
a significant sum of LDs, but will not be unduly penalized in connection
with a voluntary buyout or involuntary termination of its franchise
agreement.
If a Franchisor has given any “incentive”
money to a Franchisee, that should not be used as a means of penalizing
a Franchisee in the event of an early termination. Rather than
requiring a full repayment, the amount should be amortized over the term
of the agreement, and any monies that must be repaid should be based on
the remaining months under the agreement.
B. Windows
Provisions:
Most franchise agreements contain “window” or
“additional termination right” provisions, which allow the
parties to terminate the agreement on specified anniversary dates (e.g.,
on the fifth, tenth or fifteenth anniversaries) after the opening date
of the Facility, without having to pay LDs. Regrettably, many
Franchisors have included “gotcha” clauses in their
franchise agreements. These clauses preclude a Franchisee from
terminating early if the Franchisee encountered monetary or operational
problems at any time after the opening of the Facility, which resulted
in an alleged uncured default or low scores on quality assurance (QA)
inspections on two consecutive occasions.
Such “gotcha” clauses should be
eliminated from the franchise agreements. A Franchisee should have
the ability to terminate its agreement, with or without cause, and as a
matter of right, on the specified anniversary dates by giving at least
six (6) months prior written notice to the Franchisor. The only
contingency for the exercise of the early termination rights should be
that at the time of the proposed termination, the Franchisee is not in
default, and has paid all fees due under the franchise
agreement.
Commentary: In
franchise agreements containing “windows” or
“additional termination right” provisions, the types of
“gotcha” clauses that are most unfair are those that
explicitly state a Franchisee’s rights will automatically
terminate, without notice, if (1) the Franchisee fails to cure any
default under the franchise agreement within the time permitted, if any,
in the notice of default sent by the Franchisor, or (2) the Facility
receives a poor score on a QA inspection, and then does not receive a
higher predetermined score set by the Franchisor during a re-inspection
of the Facility.
Consequently, in many situations, the fact that a
Franchisee experienced financial or operational difficulties that
resulted in a notice of default, or low QA scores, in the first few
months or years after the opening of the Facility will forever preclude
the Franchisee from being able to exercise its early termination rights
without penalty. This is true even if the Franchisee subsequently
pays all of its fees on a timely basis, and receives excellent QA scores
for many years, before attempting to exercise its early termination
rights. These gotcha clauses give the Franchisors with an unfair
advantage, and should be eliminated from all agreements.
C. Early Termination for Underperforming
Properties:
As discussed in Fair Franchising Point 3 below, Franchisors should issue
minimum performance guarantees to Franchisees regarding the occupancy
levels of their brand name hotels. In an attempt to address this
issue, some Franchisors have adopted a “policy” that allows
a Franchisee to terminate its franchise agreement without penalty if the
Facility is underperforming and certain conditions are met. At a
minimum, Franchisors should include the provisions of their fair
franchising “policies” as contractual terms in their
franchise agreements.
These specific contractual terms should provide that
the Franchisor will allow a Franchisee to terminate the franchise
agreement without penalty if the property has achieved an occupancy rate
(total occupied rooms divided by total available rooms) that is below
fifty percent (50%) for a period of 12 months or more. There
should be no restrictive or unnecessary conditions placed on a
Franchisee’s ability to terminate the agreement early for low
occupancy rates.
POINT 2: IMPACT/ENCROACHMENT/CROSS BRAND
PROTECTION.
Franchisors should establish a fair and reasonable
formula to protect a Franchisee’s assets, and the formula should
be included as a contractual provision in their franchise
agreements. The formula should include the following important
terms:
(a) Franchisors should grant each Franchisee
contractual rights to a protected area or geographic “area of
protection” (AOP) in which the Franchisor will not allow another
Facility with the same or similar brand name as the Franchisee’s
hotel to operate. For example, if the Franchisee owns an
“ABC Hotel,” the Franchisor will not allow another Facility
with the same name (i.e., ABC Hotel) or a similar name (i.e., ABC Hotel
& Suites) to operate in the protected area or geographic AOP.
(b) Franchisors should be prohibited from
licensing not only other franchised hotels with the same or similar
brand name to operate in the protected area or geographic AOP, but also
company-owned hotels.
(c) The Franchisee’s protected area or AOP
should be maintained and recognized until such time as the franchise
agreement between the Franchisor and Franchisee has been legally
terminated.
(d) In the interest of providing fair impact rights,
Franchisors should adopt a reasonable and unbiased formula to determine
which of the brand name hotels within the Franchisor’s system are
competing in the same marketplace. The formula for determining
which hotels are competing in the same marketplace for purposes of
determining impact rights should be based on objective market criteria
developed and relied on by reputable national organizations, such as
Smith Travel Research (STR).
(e) Upon receipt of an application for a proposed
Facility, Franchisors should give written notice to Franchisees of all
brand name hotels within the Franchisor’s system that are (i)
competing in the same marketplace as the applicant’s proposed
Facility -- even if these other hotels are not the same brand name as
the applicant’s proposed Facility, and (ii) within a 15-mile
radius of the proposed Facility.
(f) To the extent a Franchisee has a brand name hotel
that is both (i) competing in the same marketplace as an
applicant’s proposed Facility, and (ii) within a 15-mile radius of
the proposed Facility, the Franchisor should permit such Franchisee to
request an impact study, so long as the Franchisee(s) requesting the
study have not been subject to a notice of termination within six (6)
months of making the request.
(g) Any Franchisee who requests an impact study
should be allowed to choose the person or company who will be conducting
the study. The selection should be from a list of at least five
(5) individuals or companies that have experience in the hospitality
industry conducting such studies. The list should be jointly
compiled and agreed upon by the Franchisor and the Franchise Advisory
Councils for the various hotel brands.
(h) The costs of the impact study should be split
equally between the Franchisor and the Franchisee(s) requesting the
study (i.e., with the Franchisor paying 50%, and the Franchisee(s)
requesting the study paying 50%), regardless of the outcome of the
impact study.
(i) To the extent an impact study concludes that the
applicant’s proposed Facility will result in an incremental impact
of 3% or more on a Franchisee’s existing hotel during the first
three (3) years of projections, Franchisors should respond by (a)
denying the application for the proposed Facility, (b) offering the
existing Franchisee a first right of licensing for the proposed
Facility, and thereby allow the existing Franchisee an opportunity to
open a Facility with the same or similar brand name in the same or a
nearby location, (c) offering reduced rates to the existing Franchisee
impacted by the proposed Facility, or (d) allowing the existing
Franchisee to exit the system without paying LDs.
(j) If the impact study concludes that the
applicant’s proposed Facility will result in a less than 3%
incremental impact on an existing Franchisee’s hotel during the
first three (3) years of projections, but within three (3) years after
the opening date of the proposed Facility, the existing Franchisee is
able to establish that it has, in fact, experienced an incremental
impact of 3% or more on its hotel, the Franchisor should respond by (a)
offering reduced rates to the Franchisee impacted by the new Facility,
or (b) allowing the impacted Franchisee to exit the system without
paying LDs.
POINT 3: MINIMUM PERFORMANCE & QUALITY
GUARANTEES.
Franchisors should issue minimum performance
guarantees to Franchisees regarding the occupancy levels of their brand
name hotels, and the number of reservations that will be delivered
through the Franchisors’ reservations systems.
Franchisors also should commit to maintaining a
certain level of quality in the franchise system, including, for
example, the key characteristics of each brand name, the public image
and reputation they will develop for each brand name, the minimum number
of hotels they will maintain under each brand name, and the amount and
type of advertising they will employ for each brand name.
Thus, if a Franchisee’s hotel is not able to
maintain certain occupancy levels over a designated period of time as
discussed in fair franchising Point 1 above, or if the Franchisor allows
the quality of a particular brand name to decline, the Franchisee should
be able to terminate the franchise agreement without penalty.
POINT 4: QUALITY ASSURANCE INSPECTIONS /
GUEST SURVEYS.
Franchisors should have the same standards for each
of their Facilities operating under a specific brand name in the
franchise system. Franchisors also should conduct their quality
assurance (QA) inspections in a fair, reasonable and unbiased manner,
and use their best efforts to prepare QA reports that are accurate and
complete.
If a Franchisee fails a QA inspection and is given a
punch list of items to repair, correct, or change, the Franchisee should
strive to complete all of the items on the punch list in a timely
manner. During the subsequent re-inspection of the Facility, the
Franchisor should only seek to confirm that, in fact, the Franchisee has
completed all of the items on the punch list. If so, the
Franchisor should give the Franchisee a passing grade. During the
re-inspection of the property, the Franchisor should not create an
entirely new punch list of items that were not previously mentioned, or
give the property a failing score for items that were not included on
the original punch list.
In the event of a dispute concerning a QA inspection
or low scores arising from guest survey cards, Franchisors should
establish an appeals process whereby a Franchisee can appeal the
decision of an inspector, or challenge the low scores it received from
the guest survey cards. In connection with the appeals process,
the Franchisee should be able to present evidence that it is in
compliance with the standards of the hotel brand, or request that the
director or supervisor of the Franchisor’s quality assurance
department personally visit the property and re-inspect the Facility to
ensure it is satisfying the necessary standards.
Commentary:
Franchisors should use their best efforts to work with, educate, and
train Franchisees who have received one or more failing QA inspections,
or low scores arising from guest survey cards, to ensure the Franchisees
understand and are doing whatever is necessary to cure the failing QA
inspections and/or improve the scores, and thereby avoid problems in the
future.
In the interest of fair franchising, a Franchisor
should not terminate a Facility based on one or more alleged failing QA
inspections, or as a result of low scores from guest survey cards,
unless and until each of the following has occurred:
• The Franchisor has thoroughly analyzed
the facts and circumstances concerning the failing QA inspection
reports, and/or the low scores from the guest survey cards, and
evaluated whether there are any valid reasons why the property received
such failing grades or negative comments on the survey cards at the time
they were issued; and
• The Franchisee has been given a
reasonable opportunity and an adequate amount of time to cure any
failing QA scores, problems with the property, and/or improve the guest
survey scores; and
• The director or supervisor of the
Franchisor’s QA department has personally visited the property,
and has issued a written statement verifying that the Facility is not in
compliance with the standards of the hotel brand and should be
terminated.
POINT 5: VENDOR EXCLUSIVITY.
In general, Franchisees should be free to buy
conforming goods from any vendor, not just those mandated by the
Franchisor. To the extent a Franchisor believes it is necessary to
mandate vendors for the purpose of establishing standards and
specifications for the hotel brands, the Franchisor should strive to
ensure that the Franchisees are receiving competitive prices by
providing a list of three (3) or more approved vendors from which
Franchisees can purchase conforming goods, or by allowing the
Franchisees to take advantage of the volume discounts arising from the
Franchisees’ group purchases of goods and services.
In addition, since the Franchisors receive a significant amount of
revenues and commissions from the mandated vendors in return for
requiring all Franchisees to purchase certain goods and services only
from such vendors, Franchisors should return these revenues and
commissions to the Franchisees for the good of the franchise
system.
Commentary: In
the interest of fair franchising, Franchisors should strive to ensure
that the Franchisees are receiving competitive prices on all goods and
services that they are required to purchase from mandated vendors.
This can be accomplished in a variety of ways. For example,
Franchisors should identify three or more approved vendors from whom
Franchisees can purchase the goods or services. Franchisors also
can pass on the volume discounts on prices arising from the purchasing
power of the Franchisees.
Franchisors should not be allowed to pocket the
entire amount of revenues and commissions they receive from mandated
vendors in return for requiring all Franchisees to purchase certain
goods and services from such vendors. Franchisors should retain
only that amount of revenues and commissions as is necessary for the
Franchisors to cover the administrative costs of managing the mandated
vendor program. All other revenues, commissions and related
benefits received from mandated vendors should be invested in programs
that benefit the Franchisees, including allocating the money to
marketing and advertising campaigns for the hotel brands, or reducing
the Franchisees’ royalty fees.
POINT 6: DISCLOSURE AND
ACCOUNTABILITY.
There should be greater Franchisor disclosure and
accountability concerning the expenditure of marketing and reservation
fees collected from Franchisees. On an annual basis, Franchisors
should disclose how the marketing and reservation fees are spent,
including identifying the specific products and services that are paid
for with the fees. A Franchisor should not profit directly from
the marketing and reservation fees it collects from the Franchisees, or
use such fees to pay for marketing and advertising related to a
Franchisor’s sale of hotels.
Franchisors should have their books and records
audited on an annual basis concerning the collection and disbursement of
marketing and reservation fees, and should share the results of the
audits with the Franchise Advisory Councils (FACs), or the designated
audit committees of the FACs.
POINT 7: MAINTAINING RELATIONSHIPS WITH
FRANCHISEES.
Franchisors should strive to maintain and build on
their relationships with the Franchisees by actively seeking feedback
from the Franchisees themselves, and by working with the various
councils and associations that represent the Franchisees, including the
Franchise Advisory Councils (FACs) and AAHOA.
A. Franchise Advisory Councils.
Franchisors should encourage and support the establishment of
independent and democratic FACs, which are comprised of a representative
group of Franchisees who are elected by the Franchisees themselves, and
who can advise the Franchisor on matters of importance to the franchise
system. At least six (6) months before implementing any changes to
the franchise system, Franchisors should seek feedback from the FACs,
and use their best efforts to follow the recommendations proposed by the
FACs on such matters.
• Amenity Creep.
Amenity creep is a recognized problem in the hotel industry, and
Franchisees are concerned that they are not being heard on such
issues. Franchisors should regularly seek input from the FACs
concerning whether specific amenities should be added, eliminated or
changed for the brand name hotels. Prior to mandating the addition
of a new amenity, Franchisors should submit the issue for a vote to the
Franchisees themselves, and obtain a 66% vote of approval from all
Franchisees who vote on the matter.
• Marketing and Advertising.
Franchisors should regularly seek input from the FACs concerning
how best to market and advertise the various brand name hotels and their
services. For example, Franchisors should consult with the FACs
concerning the annual marketing and advertising budgets, the annual
marketing and advertising plans, the format and scope of the directories
of hotels in the franchise systems, the franchise system internet
websites, and the operational plans for the franchise central
reservation system. As discussed in Fair Franchising Point 6
above, there should be greater Franchisor disclosure and accountability
concerning the expenditure of the marketing and reservation fees,
including annual audits that are shared with the FACs or their audit
committees.
B. AAHOA Relations.
Franchisors should strive to work closely with AAHOA and its members to
promote fairness in the franchise system, and to enhance their
respective business interests.
Franchisors also should seek ways in which they can
(a) increase and improve their communications with AAHOA and its
members, (b) obtain input and feedback from AAHOA and its members on
issues concerning the franchise systems, and (c) educate and train AAHOA
and its members on matters that will improve the individual hotels and
strengthen the franchise system on a global basis. Franchisors
should attempt to meet with AAHOA personnel on a regular basis to
discuss these and other related issues that are of importance to the
AAHOA Franchisee members.
• AAHOA’s CHO Program.
The AAHOA Certified Hotel Owners (CHO) program is an innovative
professional development program for hotel owners offered by the AAHOA
Institute of Management (AIM). The CHO program involves an
intense, eight-day comprehensive course taught by world class
instructors. At the conclusion of the coursework, attendees take a
CHO certification review and a CHO examination.
Franchisors should recognize and support the AAHOA
CHO program as a hospitality professional accreditation program, and CHO
graduates should be given credit for successfully completing the CHO
program in the same manner that, for example, the Certified Hotel
Administrator (CHA) and Certified Lodging Managers (CLM) training
courses have been supported and recognized by Franchisors in recent
years.
Commentary:
The CHO Program was designed to recognize and certify the expertise of
AAHOA’s member hotel owners, and is the first program of its kind
in the country. The CHO program covers a variety of topics,
including (1) Front Desk Operations & Reservations; (2) The Laws Of
Inn Keeping; (3) Leadership; (4) Hotel Sales, Marketing & Public
Relations; (5) Hotel Accounting & Business Ownership
Structure; (6) Technology For The Lodging Industry; (7) Human Resource
Management; and (8) Housekeeping, Laundry, Engineering &
Maintenance. The CHO program has several recognized sponsors,
including Best Western International, Inc., and was developed by Kapoor
& Kapoor Hospitality,
Inc.
POINT 8: DISPUTE RESOLUTION.
In all franchise agreements, Franchisors and
Franchisees should commit to establishing an independent and fair
process for the resolution of any disputes concerning the terms of a
franchise agreement itself, or the relationship between the
parties. Specifically, Franchisors and Franchisees should agree in
good faith to participate in an informal, in-person meeting between the
authorized representatives of the parties in an attempt to resolve a
dispute.
If the informal meeting is unsuccessful, the parties
should agree to participate in a non-binding mediation, before a
mediator who is neutral and mutually acceptable to the parties,
including a mediator associated with the National Franchise Mediation
Program.
If the mediation is unsuccessful, the dispute should
not be submitted to binding arbitration unless and until all parties
agree to do so, including mutually agreeing on the arbitrator who will
hear the dispute, the location of the arbitration proceedings, and the
corresponding rules and procedures for the arbitration.
Absent an agreement by the Franchisor and Franchisee
to use binding arbitration to resolve their dispute, any party should be
entitled to pursue its claims against another party in a court of
law. There should be no waiver of the right to a jury trial by any
party. There also should be no caps or limits on the amount of
damages that a party can seek or recover against another party,
including a cap or limit on the amount of punitive damages that can be
recovered against a party as allowed by law.
POINT 9: VENUE AND CHOICE OF LAW
CLAUSES.
In the event a dispute between a Franchisor and
Franchisee has not been resolved by participating in an informal,
in-person meeting with authorized representatives from the parties, or
by participating in mediation proceedings, the party pursuing its claims
in a court of law should do so in the country and state in which the
subject Facility is located. Further, any lawsuit or claims should
be governed by the laws of the country or state in which the lawsuit or
claims are filed.
POINT 10: FRANCHISE SALES ETHICS AND
PRACTICES.
Franchisors should mandate fair and honest selling
practices among their salespersons and agents.
Franchisors should use their best efforts to identify
whether any of their sales agents, or any persons acting on behalf of
the Franchisors, made any oral or written representations or promises to
any Franchisee applicants, or reached any agreements with any Franchisee
applicants, that are not contained in the proposed franchise
agreements. To the extent any salespersons or agents made any oral
or written representations or promises, or reached any agreements, with
a Franchisee applicant, they should be set forth in writing and attached
as an addendum to the particular franchise agreement.
Franchisors should include contractual provisions in
their franchise agreements that grant a Franchisee all rights, title and
interest in its own guest lists, and in all related information for
guests that have stayed at the Franchisee’s particular Facility,
which survives the termination of the franchise agreement.
Franchisors should not use any database developed from one hotel brand
to market or sell their other hotel brands to the detriment of the
Franchisees.
Franchisors and their salespersons and agents should
not engage in the practice of “churning” properties, i.e.,
seeking the early termination of an older hotel on the basis of low
quality assurance (QA) inspection scores or otherwise, so the Franchisor
can then seek and approve an application for the conversion of a newer
hotel, or the construction of a new hotel, with a particular brand name
in the same geographic region or area of protection (AOP) as the older
hotel for which the Franchisor is seeking an early
termination.
Commentary: It
is an unfortunate situation in franchising that many first-time or
“rookie” Franchisee applicants do not fully understand that
the salespersons or agents of the Franchisors will sometimes make oral
representations or promises about the Facility, the franchise system,
the franchise agreement or the License that are not included in the
proposed franchise agreement. Regrettably, because these
first-time Franchisee applicants trust and believe that the
Franchisor’s salespersons or agents will honor their oral
representations and promises, the applicants do not carefully read the
lengthy and sometimes complex franchise agreements to determine whether
such representations and promises have been included in their own
agreements.
In the interest of fair franchising, prior to the
execution of the franchise agreement, a Franchisor should ask a
Franchisee applicant to prepare a written document that identifies any
oral or written representations or promises made by, or agreements
reached with, the Franchisor, its sales agents, or any persons acting on
behalf of the Franchisor, and that are not contained in the franchise
agreement. This written document should be attached as an addendum
or exhibit to the franchise agreement.
If the Franchisee applicant does not identify any
such representations, promises or agreements, the Franchisor should ask
the applicant to carefully review and initial the paragraphs in the
franchise agreement which explicitly state that (1) neither the
Franchisor nor any person acting on its behalf has made any
representations or promises on which the applicant Franchisee is relying
that are not written in the agreement, and (2) the agreement, together
with the exhibits and schedules attached, is the entire agreement
superseding all previous oral and written representations, agreements
and understandings of the parties about the Facility, the franchise
system, the franchise agreement and the License.
POINT 11: TRANSFERABILITY.
In situations in which a Franchisee seeks to transfer
its property to an unrelated third-party, the Franchisor should not
delay, withhold its consent, or impose conditions on the transfer in an
unreasonable, arbitrary or capricious manner. Transfer fees should
be fair and reasonable (i.e., generally no more than $1,500), and based
solely on the estimated administrative costs to process the
transfer.
There should be no fees for a Franchisee’s
transfer to a spouse, child, parent, sibling, niece, nephew, descendant,
spouse’s descendant, or other family member, if the transferee is
legally competent to assume the Franchisee’s obligations under the
franchise agreement.
There also should be no transfer fees for a
Franchisee’s buyout of other shareholders or partners who had an
interest in the Facility, or for the addition of any shareholders or
partners who will gain an interest in the Facility.
In the event of a requested transfer, Franchisors
should not condition the granting of the request on a requirement that
the Franchisee or new owner adopt an extensive renovation or
modernization plan for the subject property. Any required
renovations for the subject property in connection with a transfer
should be limited to only those specific items identified in the last
two (2) quality assurance (QA) inspection reports for the subject
Facility that were issued prior to the requested transfer.
To the extent a Franchisor approves a requested
transfer, the Franchisor should not seek liquidated damages (LDs) from
the prior Franchisee, or seek any increased fees from the new Franchisee
owner of the subject Facility, because the Franchisee sought to transfer
its Facility prior to the scheduled termination date of its franchise
agreement.
Within ten (10) days of the completion of an approved
transfer of a subject Facility, Franchisors should automatically release
the prior Franchisee from any and all obligations it had under the
terminated franchise agreement, and provide it with a written letter of
release in connection therewith.
POINT 12: SALE OF THE FRANCHISE SYSTEM
HOTEL BRAND(S).
If a Franchisor sells one or more of its various
hotel brands to another entity, the Franchisor should promptly give
notice of the sale to its existing Franchisees, and pledge to work with
them and the new Franchisor owner to ensure the transition is as smooth
as possible. To the extent possible, the prior Franchisor owner
also should continue to honor its guest loyalty or rewards programs for
the guests who stayed at the hotels it is selling to the new Franchisor
owner. Alternatively, the prior Franchisor owner selling the
hotels should transfer the points or rewards earned by such guests to
another existing guest loyalty program of the prior Franchisor owner, or
a new program it establishes for the benefit of such guests.
The new Franchisor owner who purchased the hotel
brand should similarly strive to ensure that the transition is a smooth
one. Among other things, the new Franchisor owner should work
closely with the existing Franchise Advisory Councils (FACs) for the
hotel brand, or, if circumstances warrant, a newly-created FAC, to
address all issues involving its purchase and ownership of the hotel
brand. The new Franchisor owner should maintain the same or a
higher level of quality and performance for the hotel brand as the prior
Franchisor owner.
To the extent a new Franchisor owner desires to
change any system requirements for the hotel brand, it should work
closely with the FACs and the franchisees themselves before implementing
any such changes, and offer to pay or reimburse the Franchisees for the
costs of making such changes. The new Franchisor owner also should
honor the guest loyalty or rewards programs for the guests who stayed at
the hotels it is purchasing. Alternatively, the new Franchisor
owner should transfer the points or rewards earned by such guests to
another existing guest loyalty program of the new Franchisor owner, or a
new program it establishes for the benefit of such guests.
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