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Nobody Asked Me, But… No. 28
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Hotel Franchising and State Laws, Is Immigration Important? 
Save the Biltmore, The Good Old Days, Quote of the Month
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By Stanley Turkel, MHS, ISHC
May 2007
 

1.  Hotel Franchising and State Laws

In hotel franchising, state laws make a big difference in deciding disputes between franchisors and franchisees.  This is particularly true because there are no federal laws requiring franchisors to abide by the common law duty of good faith in their dealings with franchisees; no fiduciary duty when the franchisor handles its franchisees’ money in pooled advertising funds; and no duty of due care that the franchisor must show to its franchisees.  It is the absence of national minimum standards of fair dealing that is responsible for most franchise litigation.

In other words, the only rules that apply in franchising are those the franchisor’s attorneys include in the one-sided license agreements, and the widely-varied state franchise laws.

It is also astounding to consider that the only regulatory body overseeing the franchise industry, the Federal Trade Commission (FTC), says that it “does not have the resources to follow up on all meritorious complaints”.  Remember that franchise industries employ more than eight million workers in over half a million small businesses.  Combined annual sales in these franchised businesses total more than $1 trillion in retail sales in the United States.

Existing federal law and most state laws afford only minimal protection to the local franchisee.  In 1992, Iowa enacted a comprehensive franchise law that protected the franchise owner and insured that the authority, rights and responsibilities of the business were fairly shared between the two parties.  The Iowa law said that:

  1. the franchisee could give or sell a minority interest n the business to any family member without approval of the franchisor.
  2. the franchisee could sell the business to anyone as long as the new owners meet the minimum standards the franchisor uses in picking other business owners
  3. the transfer fees that the franchisor can charge cannot exceed the actual cost of doing the necessary paperwork.
  4. if a franchisor opens a franchise within an “unreasonable proximity” of an existing franchise, the existing licensee has the right of first refusal of the new business or a right to compensation for any lost market share.
  5. franchisors are precluded from not renewing a franchise agreement except for “good cause”.
  6. franchisors must grant territorial exclusivity to franchisees
  7. a retroactive clause which applied these provisions to the existing 16 franchised Holiday Inns in Iowa.
  8. an Iowa venue was guaranteed for lawsuits.
The law was so abhorrent to franchisors that many of them stopped all franchising in Iowa until the law was repealed.  Both McDonalds and Holiday Inns (when Michael Leven was president) sued the State of Iowa challenging the constitutionality of the law, “quarantined” the state and cancelled all new projects in order to prevent the spread of the law to other states.  At least 70 other franchisors withdrew completely from Iowa.  Leven said, “we cannot risk a law like this being duplicated and have other states follow suit.”

Gradually, under the intense and relentless lobbying efforts of the Iowa Coalition for Responsible Franchising (consisting of the largest franchise companies), the Iowa Franchise Investment Act was revised and weakened.

For the first time since the Iowa fiasco, new state legislation being considered in Kansas and Tennessee offers the possibility of genuine fair franchising.  For franchisees who feel trapped inside one-sided franchise agreements, here is a wonderful opportunity:

  • contribute to the election campaigns of the state legislators who introduced this legislation
  • create and finance political action committees that can lobby for fair franchising laws in every state.
As Janet Sparks wrote in Franchise Times in April 2007,
“Too many operators are battling abusive franchisors while they are trapped in unfair one-sided contracts.  Many are losing their life savings, their homes and their children’s college funds because of broken business models, frauds, mis-representations, and because of crafty franchisors who find other ways to make money off their franchisees.   Many franchisees are struggling with bankruptcy, divorce and, yes, even suicide, as we saw in the Quiznos system”.
2.  Is Immigration Important? 

Did you know that in the past 10 years, 25% of all technology companies started in the United States had at least one founder who was in immigrant, according to a study conducted by Duke University and the University of California Berkeley.  The number of international patent applications filed by non-resident immigrants increased from 7.8 percent of all applications in 1998 to 24.2 percent on 2006.

3.  Save the Biltmore 

There is wonderful news to report about the Belleview Biltmore Hotel.  Two local newspapers, The St. Petersburg Times and the Belleair Bee have reported that there is a contract to purchase the Biltmore by Legg Mason Real Estate Investors, Inc. Los Angeles, California.  Since its construction in 1897 by Henry Bradley Plant, the Biltmore has provided unparalleled elegance and hospitality for the greater Clearwater Beach, Florida community.

4.  The Good Old Days 

In 1964, the prices listed below were fair market value:

  • Ford Mustang     $2358.
  • One year’s tuition at Harvard   $2400.
  • One year’s tuition at Syracuse University   $750.
  • Four bedroom, two bath house in  South Bend, Indiana      $16,000.
  • Hershey chocolate bar          5¢
  • Steak dinner at the Palm in Manhattan       $8
  • Ticket to “Goldfinger” with Sean Connery       $1.


5.  Quote of the Month

“Fortune often pays you for the intensity of her favors by the shortness of their duration.  She soon tires of carrying any one long on her shoulders”
      Baltasar Gracian, Spanish philosopher (1601-1658)


Stanley Turkel, MHS, ISHC operates his hotel consulting office as a sole practitioner specializing in franchising issues, asset management and litigation support services.  Turkel’s clients are hotel owners and franchisees, investors and lending institutions. Turkel serves on the Board of Advisors at the NYU Tisch Center for Hospitality, Tourism and Sports Management.  He is a member of the prestigious International Society of Hospitality Consultants. His provocative articles on various hotel subjects have been published in the Cornell Quarterly, Lodging Hospitality, Hotel Interactive, Hotel Online, AAHOA Lodging Business, Bottomline, New York Times, etc. If you need help with a hotel operations or franchising problem such as encroachment/impact, termination/liquidated damages or litigation support, don’t hesitate to call 917-628-8549 or email stanturkel@aol.com.

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Contact:

Stanley Turkel, MHS, ISHC
917-628-8549
stanturkel@aol.com

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Also See: Nobody Asked Me, But - No. 27 / Hotel Franchise Agreements: Mediation, Arbitration or Litigation? / Stanley Turkel / April 2007
Nobody Asked Me, But - No. 26 / Energy Usage and Potential Savings; Great Art in Hotels; Lifestyle Hotels; The Minimum Wage Issue; Quote of the Month / Stanley Turkel / March 2007
Nobody Asked Me, But - No. 25 / Guestroom Design & Amenities, Get a Human, Best Luxury Hotels in the U.S., Turnpike, The Pineapple as Symbol of Hospitality, Fair Franchising / Stanley Turkel / February 2007
Nobody Asked Me, But - No. 24 / Loose Cannon, Fair Franchising, Manhattan Hotel Profits, Hotels of the Future, Interesting Miscellany, Quote of the Month / Stanley Turkel / January 2007
Nobody Asked Me, But - No. 23 / Biting The Hand That Feeds You?, By The Numbers, Shortage of Hotel Rooms, There is No Free Lunch, Iron Laws of Business Travel, Happy New Year / Stanley Turkel / January 2007
Nobody Asked Me, But - No. 22 / Smart Elevators, Tony Marshall’s Memorial, Women in the Hospitality Industry / Stanley Turkel / December 2006
Nobody Asked Me, But… No. 21 / The Drake Hotel in New York, Fair Franchising is Not an Oxymoron, By the Numbers, Another Secret Underground Shelter, Passing of Anthony G. Marshall / Stanley Turkel / December 2006
Nobody Asked Me, But… No. 20 / Turnabout Is Fairplay, Secret Underground Shelter, By the Numbers, Genuine Fair Franchising/ Stanley Turkel / November 2006
Nobody Asked Me, But… No. 19 / International Society of Hospitality Consultants, Great Miami Hotels, Reduce Carbon Monoxide Emissions, Turn Gray Into Gold / Stanley Turkel / November 2006
Nobody Asked Me, But… No. 18 / John Q. Hammons, Save the Belleview Biltmore, Chinese Tourism, CFLs, Ernie Byfield, Guestroom Entertainment in 1905 / Stanley Turkel / October 2006
Nobody Asked Me, But… No. 17 - AAHOA's 12 Points of Fair Franchising, Protected Territories, / Stanley Turkel / September 2006
The Newest Independent (and Oldest Partially Independent) Franchise Association in the Hotel Industry / Stanley Turkel / September 2006
In Hotel Franchising, Reality Trumps Wishful Thinking / Stanley Turkel / August 2006
Nobody Asked Me, But… No. 14; Impact Studies, Stretching Segments, Short-Stay Rentals, Smoke-free Marriotts, Franchising in China, Save the Belleview Biltmore Hotel / August 2006
The U.S. Population Age 65 and Over is Expected to Double in the Next 25 Years; What Does this Mean for the Hotel Industry? / Stanley Turkel / July 2006
Nobody Asked Me, But… No. 12; Portman, Women Homeowners, Minimum Wage, Tipping, Brooklyn Bridge, Chinese Tourism, Impact Studies / Stanley Turkel / July 2006
Do Hotel Franchisees Need Independent Franchise Associations? / Stanley Turkel / June 2006
Nobody Asked Me, But… No. 10 / Chinese Tourists, Gasoline Prices and Alternatives, GLBT Segment, Travel Agents, FAC's, Manhattan's Record Breaking Year, Impertinent Questions / Stanley Turkel / June 2006
Nobody Asked Me, But… No. 9 / Blang, Bathtubs, Best Green, Arbitration, Best Western, AAHOA, State Franchising Laws, VFR / Stanley Turkel / May 2006
Nobody Asked Me, But… No. 8; Bathtubs, Smokefree Hotels, Maps, Saving Water, Nevada Revenues, H.P. Rama, Ritz-Carlton, Statler Service Code, Mother’s Day / Stanley Turkel / April 2006
Nobody Asked Me, But….No. 7 / Stanley Turkel, MHS, ISHC / March 2006
Nobody Asked Me, But…. / Stanley Turkel / February 2006
Nobody Asked Me, But…. / Stanley Turkel / January 2006
Nobody Asked Me, But…. / Stanley Turkel / December 2005
Nobody Asked Me, But…. / Stanley Turkel / November 2005
Nobody Asked Me, But…. / Stanley Turkel / October 2005
Nobody Asked Me, But…. / Stanley Turkel / September 2005
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