Negotiating a Hotel Franchise Agreement | Hotel MarketingDecember 9, 2022
Negotiating a Hotel Franchise Agreement | Hotel Marketing
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In the last 18 months, turbulence has taken shape in the hotel industry. Though there are indications of recovery, most properties reevaluate their situation drastically. Although the industry has seen development post-recession, reevaluation of what still worked a couple of years ago and will be working moving forward will be necessary because of the changes brought by the pandemic. These reconsiderations compelled hotels to switch brands and management as a byproduct of foreclosure, shifts in ownership, or the requited realizations that the brand or the property is unfit to work together. This disturbance demands the question, “what are the possible points of negotiations within a franchise agreement?”
Although franchise agreements may appear to be irrevocable, it is still plausible to offer customizations with the knowledge of discerning whether what is achievable and what is not. Adding the fact that there are situations where many of the hotel owners are ceasing existence in the industry, it is only rational that they have a legitimate interest in negotiating these agreements. Both these interests and each property’s distinctive demands deserve equal recognition.
The following are franchising terms that are negotiable under a rebranded franchise agreement:
• Franchise and Royalty Fees – These fees would be the initial negotiation terms. Though it is infrequent that franchise fees decrease, especially if it concerns the whole duration of the agreement, a gradual increase is possible, especially in the initial period, if conceded upon. This scenario is especially evident for new hotels. Understand that some chain fees might be challenging, it is not farfetched to bargain some momentary relief.
• Area of Protection or Non-Competition – It is not a secret that owners are concerned with the competition within their market area, which is reasonable. With this concern, unless stated within the agreement, a franchisee must negotiate their geographic area of protection or non-competition. Though specificities would vary, offering customization regarding protection areas is possible.
• Management – Whether demands from brands towards the owners are for implementing costly brand standards, property development, unnecessary property program, or operating in the capital expenditures, a reliable operator finds ways to mitigate its consequences. Choosing the management company should be the owner’s discretion, not the brands. Despite the requirements of undertaking that an operator must have the expertise needed, the owner’s choice should still stand because the operator’s loyalty must be to the hotel owner. This option to veto such decisions, or the absence of such, must be negotiated.
• Capital Investment – Capital investment is also a term hotel owners can negotiate. Franchise agreements commonly allow brands to prompt owners to invest a sizeable number of resources towards new physical brand requirements. There are multiple ways to reduce these demands, such as time bracket restrictions and the limitation of the included capital improvements. This information is particularly crucial for newer properties or recently renovated ones.
• Franchise Agreements – The fifth term hotel owners can negotiate in a franchise agreement is the key money. Typically, brands evade paying such, particularly rebranded or repurposed properties. Though recent trends suggest that that is not the usual case anymore, brands are gradually more willing to pay these security deposits to acquire or retain existing properties. Either way, owners must know the realities of such money’s relevance and know that payments only occur after the hotel’s launching. Also, it is essential to mention that key money negotiation suggests the unlikeliness of franchise concessions and the costliness of doing so moving forward.
In a nutshell, though bargaining for changes in franchise agreements can be a challenging feat to succeed from, these nuances can provide massive changes to favor the hotel owners. Seeking guidance from people with vast knowledge regarding the matter will undoubtedly further the guarantees of easing hotel owners’ future endeavors in the long run.
If Bezla could be of any service to your hotel marketing, visit us at Bezla.com or give us a call at 888-999-8086.