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.

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.

�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�.

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 [email protected].

Stanley Turkel, MHS, ISHC
917-628-8549
[email protected]