On Thursday, May 12, AAHOA leaders gathered in force in Trenton, New Jersey, to testify and support a fair franchising bill known as Assembly Bill 1958 (A1958) introduced in the New Jersey legislature. The hearing on the A1958 bill was before the New Jersey Assembly Judiciary Committee.
AAHOA Mid Atlantic Regional Director Mahendra (MZ) Patel, AAHOA Past Chair Bhavesh Patel (2017-2018), incoming AAHOA President & CEO Laura Lee Blake, and more than 25 other AAHOA Ambassadors and Members rallied to the hearing to give their testimony and show their support, recognizing that engaging with lawmakers and sharing their personal stories would help to pass this game-changing legislation.
One by one, the AAHOA leaders were called to the microphone to give their testimony concerning how their franchise relationships are becoming increasingly more unfair and unbalanced in the hospitality industry, and the heavy impact that this is having on their hotels and the guests they are serving. Listening to their personal stories and the immense challenges they are facing with the mandates and business practices imposed by their hotel franchisors clearly demonstrated how consequential the passage of this bill will be to their livelihood.
A Brief Primer on Assembly Bill 1958
As a background, A1958 makes changes to the New Jersey Franchise Practices Act specifically for the hospitality industry. If passed, the key components of the legislation:
Requires a franchisor that receives “any rebate, commission, kickback, services, other consideration or anything of value” from any vendor selling products or services to its franchisees to fully disclose them and promptly turn over such monies to their franchisees
Puts various restrictions on the exclusive and mandatory sourcing of goods or resources
Provides additional territorial protections
Bans material changes to a franchise agreement by instead unilaterally making changes in the franchisor’s operations manual
Prohibits the imposition of any fees not previously disclosed in the franchise disclosure document
Disallows the selling of loyalty points without properly compensating the franchisee for the guest’s stay
Proscribes imposing any additional costs, fees, charges, or penalties for a franchisee’s alleged failure to perform
“On behalf of the 20,000 hotelier AAHOA Members, many of whom are here today in this great state of New Jersey, and who [directly or indirectly contribute to and] employ 72,000 employees in the state, they are asking for fairness,” incoming AAHOA President & CEO Laura Lee Blake said during her testimony.
“What does FAIR mean?” she asked. “It means Fairness, Accountability, Improved disclosure, and a Reasoned response and dialogue, so they can work together [with their franchisors]. And we need your help – it is not happening without assistance.”
A True Team Effort: Sharing the Hotel Owners’ Perspective
Several AAHOA Members from the Mid Atlantic region also shared their personal experiences related to provisions of the bill during the hearing. This team effort, and AAHOA Members’ sharing their testimonies, truly made an impact.
Asvin Patel, an AAHOA Ambassador from Bellmawr, NJ, who has been in the business for 42 years, testified that his daughter, who is taking over the family business, asked him how the ROI had diminished so significantly over the years. When recounting this conversation with his daughter, he said, “Dad, when you were doing business building hotels 15 years ago, 10 years ago… [how] were we able to make 15% to 20% return on investment, [but now it’s only] 2% to 3%?”
One of the most noteworthy provisions of this bill that was discussed at length was the “preferred” vendor mandates imposed on the franchisees, and the franchisors’ receipt of “rebates, commissions, kickbacks, services, or other consideration” from these vendors without fully disclosing them to the franchisees. Many members testified that they are frequently required to pay up to double, or even more, of the prices for the products and services of such vendors because of these undisclosed “kickbacks” being paid to the franchisors. The significantly higher prices for the products and services that are needed for the hotels is diminishing the members’ ROI and also substantially impacting the guest room rates.
This bill would help protect the owners’ ROI by prohibiting the collection of such monies by the franchisors from the preferred vendors without full disclosure to the franchisees and a return of such commissions and kickbacks to the franchisees.
AAHOA Ambassador Rajesh Patel with Pratik Palmer, Inc., out of Hillsborough, NJ, said that we need fair and practical regulations.
“We cannot survive on a 2% or 5% return,” he said. “If [a pandemic were to happen] again, we wouldn’t be able to [make it] – we need a decent NOI and ROI on our investment to survive.”
Bringing Franchisors to the Table
During her testimony, Blake said that she is thankful that this is a bipartisan bill because it shows that everyone recognizes there are issues to resolve.
“The other thing I want you to be aware of is that these fees that are being passed on to our hotel owner franchises are [also] being passed along to the guests. That is impacting the traveling public, that’s impacting the consumers,” she said. “Meanwhile, the franchisors are collecting these fees... without being fully transparent about what they’re doing.”
Blake reiterated that AAHOA Members coming together to convey their support shows they care about what is happening in New Jersey, and they care about what happens in this bill because it’s the only way to bring franchisors to the table and finally get some answers to questions they’ve been asking for years.
“The entire AAHOA membership is watching, I can assure you,” she said.
In the end, the New Jersey Assembly Judiciary Committee passed the bill on Thursday.
“With only days before my official May 16 start date as the new President and CEO of AAHOA, this was a fantastic opportunity to travel to New Jersey and strongly advocate for our members on this important fair franchising legislation,” said Blake. ”Indeed, it shows our members that AAHOA is concerned about what they are facing, and we are here to voice concerns and advocate for change because the systems are not fair and they are not working. The New Jersey leaders carried the day, and the passage of this bill out of Committee was a truly great start to the new day we are building for AAHOA.”
Representing the Voice of Hotel Owners: A New Day for AAHOA
There are a lot of organizations that assert they are representing the interests of hotel owners overall, yet they principally serve as the voice of the franchisors. AAHOA is unique in that it is the only organization dedicated solely to serving the best interests of, and acting as the foremost advocate for, America’s hotel owners.
“It truly is a new day for AAHOA, a new start for our organization, and I am proud of our team's efforts in New Jersey and for standing up for America's hotel owners,” said AAHOA Chairman Neal Patel. “As they say, action speaks louder than words – today AAHOA demonstrated that we are the one and only voice for America's hotel owners.”
More than 80% of AAHOA Members are franchisees. In its recent efforts to raise awareness, open the dialogue with the franchisors, and provide education involving fair franchising, AAHOA recently updated its 12 Points of Fair Franchising, giving members and brands a best-in-class approach to mutually beneficial franchise systems.
AAHOA thanks Mid Atlantic Regional Director Mahendra (MZ) Patel, Mid Atlantic AAHOA Ambassadors, AAHOA Past Chair Bhavesh Patel (2017-2018), and the dozens of AAHOA Members who took the time to listen or show their support on Thursday.
The New Jersey bill A1958 is a great start to help ensure franchise partnerships are fair, have improved disclosure, and create an open dialogue for all parties involved. As demonstrated at Thursday’s hearing, AAHOA’s franchise relations efforts are a priority at the national level and at the state level.
Immediately after the hearing, Ambassador Rajesh Patel said, “This was the greatest day in 25 years.”
And AAHOA echoes this sentiment.
When AAHOA unites behind a common cause we can create impact and change with one cohesive voice. With Blake beginning her tenure as AAHOA’s next President & CEO on Monday, it truly is “a new start.”
Listen to the complete hearing here