News for the Hospitality Executive |
Hotel Franchise Lawyer:
By
Jim
Butler & Robert
Braun
of the Global Hospitality
Group®
Author of www.HotelLawBlog.com September 13, 2011 Hotel
Lawyer with some tips on Hotel Franchise Agreements and the 5 biggest
mistakes
a hotel owner can make The branding is often accomplished by a franchise or license agreement from a company owning the brand. Other times it is accomplished by a branded hotel management company entering into a management agreement with the owner of the hotel, providing both the brand and management for the property. Although we have spent a lot of time on Hotel Law Blog discussing hotel management agreements, today we are going to focus on the franchise or license agreement arrangements. With more than 20 years' experience working with more than 1,000 hotel management and franchise agreements, we have some perspectives that may be worth considering. Hotel owners keep falling into the same traps One of these perspectives of our hotel lawyers is that many sophisticated hotel investors and owners seem to fall into a handful of traps that would be easy to avoid. And this same handful of traps catches the unwary time and again. So this article focuses on hotel franchise agreements and outlines the 5 biggest mistakes an owner can make when seeking a hotel franchise arrangement. If this sounds all too familiar, you have probably learned these lessons the hard (and expensive) way. If you haven't stumbled on these yet, you won't want to miss the warning flags and the traps they portend. Hotel Franchise
Agreements: The 5 biggest
mistakes a hotel owner can make Robert E. Braun
| Hotel Lawyer, JMBM Global Hospitality
Group® Mistake
#1 :Focusing on just one brand and letting them know you "have" to
have them. Famous
last words: "I just have to have [name of brand] for my hotel - they
are
perfect! Mistake
#2: Trying to do it yourself - it's a false economy. You don't know
what you
don't know. Finding a good brand is intentional, not accidental, and drawing out the best business and legal terms in a franchise takes someone who has been there before. Hotel executives make their living by negotiating hundreds of deals with amateurs. Unless you identify the real issues and realistically approach your project and its needs, your deal will get shopworn and tired before it is positioned. And if you let the franchisor drive the process, you are likely to find yourself with a letter of intent or term sheet before you have identified your needs and shaped the conversation. Mistake
#3: Starting the process by getting proposals from the brand to save
time and
money. For all intents and purposes, the letter of intent is the final agreement - unless you identify the points of negotiation, virtually every franchisor will demand that you sign their franchise agreement as-is. Franchise agreements are not like other commercially-negotiated agreements; franchisors demand uniformity and making changes, even changes which make business sense, must be identified early. It is true that letters are generally non-binding, but the only alternative to agreeing to the franchisor's terms is often to walk away from the agreement, typically forfeiting a substantial (often six figure) application fee! Mistake
#4 - Believing that the franchisor's interests are aligned with yours
because
they make an investment in the property. Famous
last words: "We and [name the brand] have the same interests - they are
giving us key money to get the deal." Mistake
#5: Relying on a third party manager to protect your interests. Famous
last words: "I have a great operator for the hotel - they will
negotiate
with the brand and make sure I get a fair deal." How
to Avoid these Mistakes How do
you achieve this balance? Over the years, JMBM's Global Hospitality Group® lawyers have negotiated hundreds of franchise agreements. We assist owners in identifying their goals, reviewing and prioritizing their needs, and pinpointing the brands that are most likely to match those needs. We recognize the inherent limitations in franchise agreements, and advise not only as to the potential terms, but the likely terms and how owners can balance their needs with the limits of the brands. We are a known quantity to franchisors and bring additional credibility to the deal. Negotiating a hotel management or franchise agreement is one of the most important things hotel owners will ever do for their hotel investment. We can help. You will find a lot more valuable information related to this topic on the Hotel Law Blog under the Topic hotel management and franchise agreements. Also
see The HMA Handbook:
Hotel
Management Agreements for Owners, Developers, Investors and Lenders. ________________________ ________________________
________________________ Jim Butler is a founding partner of JMBM, and Chairman of its Global Hospitality Group® and Chinese Investment Group™. Jim is one of the top hospitality attorneys in the world. GOOGLE "hotel lawyer" and you will see why. Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them. JMBM’s Global Hospitality Group® The hotel lawyers in the Global Hospitality Group® of Jeffer Mangels Butler & Mitchell (JMBM) comprise the premier hospitality practice in a full-service law firm and are the authors of the Hotel Law Blog. We represent hotel owners, developers, investors and lenders and have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,000 properties worldwide. For more information about the Global Hospitality Group®, go to www.HotelLawBlog.com. For more information about full range of legal services provided by JMBM, go to www.JMBM.com. |
Contact:
Jim Butler
|