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The Global
Hospitality Advisor
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September 2006 - Any casual observer of transactions in
the hospitality industry will notice that hotels regularly change their
flags.
In a mixed-use environment, the owner of a major shopping mall (or an office-residential-hotel project) may decide to upgrade or reposition the mixed-use development. A hotel may be a vital part of this effort, and transitioning to the right brand for the mixed-use community is critical. In addition to selecting a brand that appeals to its targeted consumer group, the owner will need to identify an operator that will cooperate with its mixed-use neighbors and seamlessly integrate into the larger project. Rebranding�whether in a mixed-use environment or as a stand-alone property�will also typically take place on termination of franchise and management agreements, or when a hotel gains a new owner. In these cases, a hotel owner often seeks a new manager in order to achieve better operating results, maximize value, or simply to engage an operator that is more in tune with the owner�s objectives. Benefits and Consequences The benefits of a change in brands can be significant: a new brand can give marketing a boost, increase the public profile of a property and can lead to higher occupancy, higher revenue and ultimately, greater value. These benefits may be lost, however, if the transition to new management or a new brand is not implemented effectively. Even worse, a badly done transition can cause significant problems. Failure to consider the impact of changing reservation systems can lead to lost reservations or a half-empty hotel. Poorly conceived downsizing can result in labor problems and litigation. Failure to remove the signs and other proprietary marks of a prior franchisor or manager can result in claims of trademark infringement. And all of this can result in negative publicity, which may be difficult to overcome. The best time to consider termination issues is in the beginning�when the parties first enter into the operating or franchise agreement. While it seems counterintuitive to address these issues years in advance, the simple fact is that all agreements terminate at some point�some more abruptly than others�and putting into place the framework for termination early will facilitate later changes. Even if termination provisions are included, the parties should review them carefully prior to a change and determine whether they should be supplemented or revised to take into account changed circumstances and goals. Key Considerations in Rebranding Surrender of Premises. A manager should agree in advance to surrender the premises peaceably at the time of termination. Any dispute regarding the surrender should be resolved separately, and not interfere with the ability of new management to take control of the hotel. Income and Fees. Termination provisions should be clear as to the calculation of fees on termination, and the timing of payment. Remember that reimbursements and fees may not be calculable until some period of time after termination. Provisions should be considered which define specifically the timing for determination of fees, and the means by which disagreements will be resolved. Robert Braun is a senior member of the Global Hospitality Group® and partner in the Firm�s Corporate Group, Mr. Braun advises hospitality clients with respect to business formation, financing, mergers and acquis-itions, venture capital financing and joint ventures. He also represents clients in the negotiation of hotel and spa management and franchise agreements, as well as tele-communications, software, Internet, e-commerce, data processing and outsourcing agreements for the hospitality industry. For more information on how rebranding might affect your business, contact him at 310.785.5331 or [email protected]. Copyright © 2006 Jeffer, Mangels, Butler & Marmaro LLP (JMBM). All rights reserved. Global Hospitality Advisor® and Ask the Hotel Lawyer� are trademarks/service marks of JMBM. The Global Hospitality Advisor® is published 4 times a year for the clients and friends of JMBM. |
Jeffer Mangels Butler & Marmaro LLP 1900 Avenue of the Stars, 7th Floor Los Angeles, CA 90067-4308 Attn: Jim Butler 310.201.3526 � 310.203.0567 fax [email protected] http://www.jmbm.com The premier hospitality practice in a full-service law firm |