News for the Hospitality Executive |
Tips from Hotel Franchise and Management Lawyers:
By
Jim
Butler & Robert
E. Braun
of the Global Hospitality
Group®
Author of www.HotelLawBlog.com September 12, 2011 Hotel Lawyer on changing brand standards. Hotels need brands, and brands need hotels. Like all relationships, the relationship between branded hotel operators or franchise companies (the brand) and hotel owners needs ground rules. As long as both parties agree to the rules and follow them, who can complain? Now, what happens if the ground rules change? In most relationships, both parties would agree to change the rules -- or they would separate and go their own ways. And what if one of the ground rules is that only one party can change the rules at any time? And the other party would have to follow them, no matter what? This is what can happen to hotel owners that agree, often for very good reasons, that a brand can change its standards for the hotel. Sometimes the change in brand standards is not so good for the owner... one day you're turning a profit and the next day you're in the hole, paying for expensive changes required by the "new brand standards," with no return on investment in sight. The management or franchise agreement sets the ground rules and allocates risk between the hotel operator and the hotel owner. Negotiating the agreement, which will include "brand standards", is one of the most important things hotel owners will ever do for their hotel investment. Here is some advice from my partner, Robert Braun, co-author with me of the HMA Handbook. The Shifting
Sands of Hotel Brand
Standards Robert E. Braun
| Hotel Lawyer, JMBM Global Hospitality
Group® One of the consistent themes to all brand management or franchise agreements are "brand standards." They are designed to provide the common feeling or identification which allow all hotels under a common name to be recognizable as part of the brand, eliminating inconsistencies and providing for a reliable guest experience, which should, in turn, create loyalty to the brand. From the owner's point of view, these standards provide stability and are key to determining the proper brand - a developer or purchaser selects a brand largely based on whether that brand will meet the market for which the hotel has been designed. But what happens if the brand changes its standards? How
can Brands change their standards? Why
change standards? In addition, standards for different classes of hotels tend to evolve over time, and modifying standards may be essential to remaining competitive. A hotel that may have been considered "midscale" ten years ago would only be a competitive midscale hotel today if it incorporated the technological and other changes that have been adopted by other hotels in its class. For example, few, if any, hotels had Internet access or flat screen televisions twenty years ago; those are now standard marketing tools for brands. What
can go wrong? One of our clients recently faced this dilemma when it was notified that the property would require design changes to meet new brand standards. This change came despite the fact that the brand had already approved the plans and the hotel was well into construction. Furthermore, the changes would violate agreements with lenders and the city! We were able to negotiate a temporary reprieve, but it is clear that this story hasn't yet ended. Changing
classes When that happens, the owners' dilemma is even greater. Not only must they consider the viability of implementing significant upgrades, they need to consider whether the new classification, which will inevitably change the economics of the flag, is consistent with their business plan. An owner that selected Crown Plaza specifically because it was an upscale hotel will have to either compete in a different environment, or negotiate an exit from the system and, most likely, reflag the hotel, often at considerable cost. Why
does this happen? What
can I do? If you are already signed up with a brand, you should diligently follow brand developments. Take advantage of owners' groups and respond to indications that a brand may be preparing for a meaningful change. Anyone
thinking about a hotel franchise agreement or management agreement
should
consider these steps:
Get
it right the first time! Go to the Management and Franchise Agreement section of the Hotel Law Blog to read more about the critical importance of hotel management and franchise agreements. The HMA Handbook: Hotel Management Agreements for Owners, Developers, Investors and Lenders includes a section on "What You Need in Your HMA" and is available free of charge to hotel owners, developers, investors and lenders. ________________________ ________________________
Robert
Braun is a senior
member of the Global
Hospitality Group® at JMBM. Mr. Braun advises hospitality clients
with respect
to management agreements, franchise agreements and spa agreements. He
also
advises on business formation, financing, mergers and acquisitions,
venture
capital financing and joint ventures, telecommunications, software,
Internet,
e-commerce, data processing and outsourcing agreements for the
hospitality
industry. Contact him at 310.785.5331 or [email protected]. ________________________ 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
|