A franchise agreement is a legally binding document that outlines a franchisor's terms and conditions for a franchisee. Every franchise is governed by these terms, which are generally outlined in a written agreement between both parties. 一份特许经营协议是一份具有法律约束力的文件，概述了特许人对特许经营者的条款和条件。每个特许经营都受这些条款的约束，这些条款通常在双方之间的书面协议中概述。
The franchise agreement will govern everything about how the franchisee runs the new business and lay out what they can expect from the franchisor. Learn more about what's in the agreement and what it will mean if you decide to franchise your business or become a franchisee.
What Is a Franchise Agreement? 什么是特许经营协议？
In the United States, a business becomes a franchise if it meets the definition established by the Federal Trade Commission (FTC), known as the FTC Franchise Rule. Under the FTC Franchise Rule, there are three general requirements for a franchise agreement to be considered official: 在美国，如果一家企业符合联邦贸易委员会（FTC）制定的定义，即所谓的 FTC 特许经营规则，那么它就成为一个特许经营。根据 FTC 特许经营规则，特许经营协议被视为正式需要满足三个一般要求：
The franchisee's business is substantially associated with the franchisor's brand. In franchising, the franchisor and each of its franchisees are sharing a common brand. 加盟商的业务与特许经营者的品牌密切相关。在特许经营中，特许经营者和每个加盟商共享一个共同的品牌。
The franchisor exercises control or provides substantial assistance to the franchisee in how it uses the franchisor's brand to conduct business. Because the franchisee is an independent contractor and not a joint employer, generally those controls cover brand standards and do not extend to the human resources of the franchisee, nor do they extend to how the franchisee manages its business-aside from meeting the requirements of the brand standards-on a daily basis. 特许人在特许人的品牌使用方式上对特许人提供实质性协助或行使控制。由于特许人是独立承包商而不是联合雇主，通常这些控制涵盖品牌标准，不涉及特许人的人力资源，也不涉及特许人如何管理业务-除了每天满足品牌标准的要求。
The franchisor receives a fee from the franchisee for the right to enter into the relationship and to operate its business using the franchisor's trademarks. The fee can be an initial fee of at least or it can be a continuing fee-with certain exemptions provided under the law. 1 特许人收取特许人费用，以获得进入关系并使用特许人商标经营业务的权利。该费用可以是至少 的初始费用，也可以是根据法律规定的某些豁免的持续费用。
Note Several states have also passed laws that define a franchise, and the definitions may include some relationships that do not meet the FTC Franchise Rule. 一些州也通过了定义特许经营的法律，这些定义可能包括一些不符合 FTC 特许经营规则的关系。
A franchise agreement is a license that establishes the rights and obligations of the franchisor and the franchisee. This agreement is designed to protect the franchisor's intellectual property (IP) and ensure consistency in how each of its licensees operates under its brand. Even though the relationship is codified in a written agreement that is meant to last as long as 20 years, the franchisor needs to have the ability to evolve the brand and its consumer offering to stay competitive. 特许经营协议是一种许可证，规定了特许人和特许经营者的权利和义务。该协议旨在保护特许人的知识产权（IP），并确保每个许可证持有人在其品牌下运营的一致性。尽管该关系在旨在持续长达 20 年的书面协议中被规范，但特许人需要有能力发展品牌及其消费者提供，以保持竞争力。
The agreement also needs to be flexible enough to allow the franchisor to make contractual modifications that reflect decisions in response to franchisees' specific needs. However, there are no changes to the stipulation that franchisees must manage their independently owned businesses daily in accordance with brand standards. 协议还需要足够灵活，以允许特许人进行合同修改，以反映对特许人特定需求做出的决定。然而，特许人必须根据品牌标准每天管理其独立拥有的企业的规定没有变化。
How a Franchise Agreement Works 特许经营协议的运作方式
The franchise agreement needs to deal with some basic elements, including, but not limited to: 特许经营协议需要处理一些基本要素，包括但不限于：
Overview of the relationship: This includes the parties to the contract, the ownership of IP, and the overall obligations of the franchisee to operate its business to brand standards. 关系概述：这包括合同各方、知识产权所有权以及特许经营者按照品牌标准经营业务的总体义务。
Duration of the franchise agreement: This involves the length of the relationship, the franchisee's successor rights to enter into new agreements, and the requirement to upgrade the franchisee's location. 特许经营协议的期限：这涉及关系的长度、特许经营者的继任权进入新协议以及要求升级特许经营者的位置。
Initial and continuing fees: Franchisees generally pay an initial and continuing fee to the franchisor for entering into the system and remaining a franchisee. Agreements also typically include a number of side fees. Most franchise systems provide for a payment to an advertising or brand fund that is used by the franchisor to market the brand to the public and for other contractually defined purposes. 初始和持续费用：加盟商通常向特许经营者支付初始和持续费用，以进入系统并保持加盟商身份。协议通常还包括一些附加费用。大多数特许经营系统规定向广告或品牌基金支付费用，该基金由特许经营者用于向公众推广品牌和其他合同规定的目的。
Assigned territory: Not every franchise agreement grants a franchisee an exclusive or even a protected territory, but specifics about the territory must be defined. Franchisors also need to deal with reservation of their rights within a franchisee's territory, including alternative distribution sites and sales over the internet. 分配的领土：并非每份特许经营协议都授予特许经营者独家或受保护的领土，但必须明确定义领土的具体内容。特许经营者还需要处理在特许经营者领土内保留其权利的问题，包括替代分销点和通过互联网销售的问题。
Site selection and development: Franchisees generally find their own sites and develop them according to the franchisor's standards. The role of the franchisor is generally to approve the location found by the franchisee and then approve, prior to opening, that the franchisee has built its location to meet design and other brand standards. 选址和开发：加盟商通常会自行寻找地点，并根据特许经营者的标准进行开发。特许经营者的角色通常是批准加盟商找到的地点，然后在开业之前批准加盟商已经建立了符合设计和其他品牌标准的地点。
Initial and ongoing training and support: Franchisors generally provide a host of preopening and continuing support, including training, field, and headquarters support, supply chain, and quality control. 初始和持续培训和支持：特许经营者通常提供一系列的开业前和持续支持，包括培训、现场和总部支持、供应链和质量控制。
Use of intellectual property including trademarks, patents, and manuals: The IP of every franchise system is its most valuable asset, some of which will change as the system evolves. The agreement defines what is licensed to the franchisee, how the franchisee can use the IP, and the rights of the franchisor to evolve the system through changes to the franchisor's operating manual. 知识产权的使用，包括商标、专利和手册：每个特许经营系统的知识产权都是其最有价值的资产，其中一些将随着系统的发展而改变。协议规定了授权给特许经营者的内容，特许经营者如何使用知识产权，以及特许经营者通过对特许经营者操作手册的更改来发展系统的权利。
Advertising: The franchisor will reveal its advertising commitment and what fees franchisees are required to pay toward those costs. 广告：特许经营者将披露其广告承诺以及加盟商需要支付的费用。
Insurance requirements: Franchise agreements will define the minimum insurance a franchisee is required to have prior to opening and during the term of the agreement. 保险要求：特许经营协议将规定特许经营者在开业前和协议期间必须具备的最低保险要求。
Record-keeping and the right to audit the franchisee's records: The franchisor defines the records that it needs its franchisees to maintain, the software franchisees are allowed to use, and its rights to access and audit that information. 记录保存和审计特许经营者的记录权利：特许经营者定义了需要其特许经营者保留的记录、允许使用的软件特许经营者以及其访问和审计该信息的权利。
All the rest: Some may call it boilerplate, but in well-developed agreements, it is not. Among the myriad issues contained in the franchise and other agreements are the franchisee's successor rights, default, termination, indemnification, dispute resolution, resale rights, transfer rights, rights of first refusal, sources of supply, local advertising requirements, governing law, general releases, personal guarantees, and roll-up provisions. 其余的所有内容：有些人可能称之为固定条款，但在完善的协议中，它并不是如此。在特许经营和其他协议中包含的众多问题中，包括特许经营者的继任权、违约、终止、赔偿、争议解决、转售权、转让权、优先购买权、供应来源、本地广告要求、适用法律、一般免责声明、个人担保以及合并规定。
Before Signing a Franchise Agreement 在签署特许经营协议之前
The FTC rule requires that franchisors provide to prospective franchisees a presale franchise disclosure document (FDD), which is designed to provide potential franchisees with the necessary information for purchasing a franchise. Considerations include the risks and rewards, as well as how the franchise compares with other investments. FTC 规定要求特许经营者向潜在特许经营者提供预售特许经营披露文件（FDD），旨在为潜在特许经营者提供购买特许经营所需的必要信息。考虑因素包括风险和回报，以及特许经营与其他投资的比较。
Note Franchisors are required to provide the FDD to prospective franchisees at least 14 days before signing it. If the franchisor then makes any major changes to the agreement, it must allow at least seven days for the franchisee to review the completed franchise agreement before signing it. 注意：加盟商必须在签署前至少提前 14 天向潜在加盟商提供 FDD。如果加盟商随后对协议进行任何重大更改，必须至少允许加盟商在签署前至少七天审查完成的加盟协议。
The franchise agreement is long, detailed, and provided to prospective franchisees as an exhibit to the FDD well in advance of signing it to ensure they have time to review the agreement and get advice from their lawyers and other advisers. 3 特许经营协议很长，详细，并且提前作为 FDD 的附件提供给潜在的特许经营者，以确保他们有足够的时间审查协议并从律师和其他顾问那里获得建议。
Franchise Agreement Pitfalls 特许经营协议陷阱
Franchising is about consistent, sustainable replication of a company's brand promise, and an agreement must detail the many business decisions that go into creating a franchise system. It's complex and, in most instances, a contract of adhesion, meaning an agreement that is not readily subject to change. 特许经营是关于公司品牌承诺的一贯、可持续的复制，协议必须详细说明涉及创建特许经营系统的许多业务决策。这是复杂的，在大多数情况下，是一种粘附合同，意味着一种不容易改变的协议。
Because a franchise agreement is meant to reflect the uniqueness of each franchise offering and explain the dynamics of the intended franchise relationship, copying another franchise system's agreement is likely the single biggest mistake a new franchisor can make. 由于特许经营协议旨在反映每个特许经营提供的独特性并解释旨在特许经营关系的动态，复制另一个特许经营系统的协议很可能是新特许经营商可能犯的最大错误。
In developing a proper set of franchise agreements, each of the elements of the franchise need to be evaluated. Prior to having the lawyers begin to draft the agreements, it is essential for the franchisor to first develop its business plan and decide on all of these important issues. For most franchisors, it is important that, in addition to working with qualified franchise lawyers, they first work with experienced and qualified franchise consultants to craft their franchise offering. 在制定适当的特许经营协议时，需要评估特许经营的各个要素。在律师开始起草协议之前，特许经营者首先需要制定其业务计划并决定所有这些重要问题。对于大多数特许经营者来说，重要的是除了与合格的特许经营律师合作外，他们首先要与经验丰富、合格的特许经营顾问合作，来制定他们的特许经营方案。
Key Takeaways 主要观点
A franchise agreement is a legally binding document that sets the terms of the relationship between a franchisor and franchisee. 一份特许经营协议是一份具有法律约束力的文件，规定了特许人和特许经营者之间的关系条款。
Franchisors must give a franchisee 14 days to review all disclosures before signing an agreement. 加盟商必须在签署协议之前给予加盟商 14 天时间审查所有披露文件。
Both parties should thoroughly review franchise agreements with the help of a lawyer before signing. 双方在签署前应在律师的帮助下彻底审查特许经营协议。
Management contracts are legal agreements that enable one company to have control of another business's operations. Business owners often sign these written agreements directly with the management company. This typically gives the management company operational control for an established period of time, usually for two to five years. Most management contracts are taskspecific and focused on the work itself, not established outcomes. 管理合同是一种法律协议，使一家公司能够控制另一家企业的运营。企业所有者通常直接与管理公司签署这些书面协议。这通常会使管理公司在一段时间内获得运营控制权，通常为两到五年。大多数管理合同是任务特定的，侧重于工作本身，而不是既定结果。
Advantages of Management Contracts 管理合同的优势
Using a contract management company can give business owners more time to focus on growing the business instead of daily operational tasks. 使用合同管理公司可以让企业所有者有更多时间专注于发展业务，而不是日常运营任务。
Contract management companies can complete a wide range of tasks, including hiring, firing, and recruiting. 合同管理公司可以完成各种任务，包括招聘、解雇和招聘。
A contract management company can help business owners manage more than one business. 合同管理公司可以帮助企业主管理多个业务。
An outside manager often has expertise in working with many different companies. 外部经理通常具有与许多不同公司合作的专业知识。
Unlike employees who quit and go on to other ventures, the operations the management contract firm offers will be consistent, regardless of the tenure of one specific person. 与辞职并从事其他事业的员工不同，管理合同公司提供的运营将始终保持一致，不受特定个人任期的影响。
Management contracts typically have a high degree of accuracy and efficiency. 管理合同通常具有高度的准确性和效率。
Disadvantages of Management Contracts 管理合同的缺点
Unlike when you hire an employee into your company, using a management company means that you will have to give up some privacy by letting another company know about your company's internal operations. 与雇佣员工进入您的公司不同，使用管理公司意味着您将不得不放弃一些隐私，让另一家公司了解您公司的内部运营。
The management company will be exposed financially, which can make your company more vulnerable to exposure and fraud. 管理公司将面临财务风险，这可能使您的公司更容易受到曝光和欺诈的影响。
You may end up with a conflict with a contract management company that is unexpected. 您可能会与一家意想不到的合同管理公司发生冲突。
Using a contract management company can change financial forecasts and outcomes. 使用合同管理公司可以改变财务预测和结果。
If the management contract is industry-specific, the management company may also manage the operations of your competitors. 如果管理合同是行业特定的，管理公司也可能管理您竞争对手的运营。
Frequently Asked Questions About Management Contracts 管理合同常见问题
What is the goal of a management contract? 管理合同的目标是什么？
When drafting a management contract, the main goal is to establish the guidelines by which the management company will assume control of another business. The contract enables the management company to take control of part of the company's operations so that it can run the daily operations in exchange for payment.
How does the contract enable management companies to get things done? 合同如何使管理公司能够完成工作？
The management contract gives the management company the authority to manage the company as it sees fit, as long as it is meeting set goals and completing agreed-upon tasks. That means that the company can have its workers do the work or outsource it to contractors.
What kind of tasks do management contracts include? 管理合同包括哪些任务？
Management contracts can include nearly all of the business functions including providing technical support, personnel management, marketing, sales training, and accounting.
How do management contracts set up payment structures? 管理合同如何设置支付结构？
That depends on the contract, but most management contracts establish a flat fee for services. That way, payments are not based on collecting fees for actions other than achieving goals. Establishing such a pay structure also limits the risk to both parties as neither party can manipulate it in their favor.
What if I want to have a contract that is based on performance rather than the end result?
You can structure a management contract to focus on a pay-for-performance model. In this case, the operator's risk will be higher, which includes the asset condition risk as well as maintaining equipment and other possible costs.
How to Write Management Contracts
The management contract details just how much control the management company is to have over the company.
Include how much the management company is to be paid and how often.
Detail job expectations so both parties know what is expected and how performance will be evaluated.
Determine how long the management contract is to be in place.
Most management contracts last for one year, with options for renegotiation and extension.
Clearly identify what happens if either party is in breach of contract.
This includes how to suspend the contractor if fines are to be paid to the business owner.
Some companies choose to start a relationship with a management contract as a trial period. The specifics and scope of the work should be included.
All members need to sign the document and get their own copy.
Reading 3:
What is the difference between Franchise and Management Agreements
What is a Franchise?
Franchising is a business system developed by a franchisor and licensed to franchisees. The franchise network is made up of similar or identical businesses, that are operated by independent business owners (the franchisees). These franchisees use the marketing structure and intellectual property that is controlled and owned by the franchisor.
You can enter a franchise by signing a franchise agreement. In this agreement, the franchisor grants you the right to:
use their intellectual property and trademarks; and
operate your business using their business structure and systems.
What is a Franchise Agreement?
The franchise agreement is one of five key documents that must be issued by franchisors. It is the formal agreement between you and any franchisee. Additionally, the Franchising Code of Conduct requires that these documents are issued to all franchisees.
A franchise agreement will generally include details of the:
key business terms;
franchisee's obligations;
franchisor's obligations; and
procedures that will be relevant to the operation of the business.
Note This agreement will provide franchisees with the intellectual property rights and know-how to operate the franchise business. The franchisee will be the owner of the business. However, they will be required to adhere to the standards of the franchise brand and pay you ongoing royalty and franchise fees.
What is a Management Agreement?
A management agreement is an agreement between a business owner and operator, that gives the operator the right to run the business. It may also be referred to as an operating agreement. A management agreement is similar to a franchise agreement in the sense that it allows another party to operate one of your businesses. However, you will maintain ownership of the business, but the operator will be responsible for the day-to-day running of the business. Management agreements are relatively uncommon but can be useful in the franchising industry in a pinch.
Recommended Readings
Choose your method of doing business : franchise or management agreement ?
What Are the Key Differences Between a Franchise and Management Agreement?
The main differences between these two types of agreements are set out below:
Franchise Agreement
Management Agreement
What rights are
granted in the
agreement?
a franchise agreement gives
franchisees a 'business in a
box';
franchisees will gain access
to the brand's intellectual
property and insider
business know-how in the
operations manual; and
there might be a central
marketing fund for the
franchise.
the business operator will manage and operate the
business on behalf of the owner. The operator will be paid
for their services, but they will not own the business; and
the business operator may also use a business operations
manual. However, you will typically select the operator on
the basis of their skill and expertise.
What are the
key obligations
in the
agreements?
Key obligations include that the:
franchisee will operate the
business day-to-day:
franchisee must comply with
the standards set out in the
franchise agreement and
operations manual;
franchisor may provide
ongoing support to the
franchisee and must comply
with the Franchising Code of
Conduct, particularly in
relation to resolving
disputes; and
franchisee will pay ongoing
royalty and franchise fees.
Key obligations include that the:
operator will be responsible for the day-to-day running of
the business but will be accountable to the owner;
operator will need to meet the standards and targets set
out in the management agreement;
business owner will need to pay the operator accordingly:
and
business owner will maintain overall legal responsibility for
the business. Depending on the terms of the agreement,
this may include complying with tax laws for the business,
employment responsibilities for employees not involved in
the management agreement, acquiring relevant permits
and insurances for the business and premises and any
obligations created by a lease on the premises.
What Are the Benefits and Risks of a Franchise Agreement?
There are many benefits to expanding through the franchise model. These include:
franchisees will pay the bulk of the expansion set up costs;
reduced legal risk for the franchisor as franchisees will enter the lease and hire their own employees;
franchisees will be responsible for the day-to-day management of the franchise and have skin in the game to ensure performance; and
you will receive ongoing fees while the franchisee operates.
However, the disadvantages of franchising include:
higher upfront costs obtaining trade marks, and developing tested business procedures and the operations manuals;
the franchisor only receives a percentage of the franchisee's revenue;
the franchisee retains most of the revenue;
less control over the business while the franchisee is operating; and it is more difficult to affect changes to business processes and adapt to change.
What Are the Benefits and Risks of a Management Agreement?
The advantages of using a management system to expand include:
you will maintain ownership of the business;
you will still have control of the business while not being involved in the day-to-day operations;
your operator will be an experienced business operator;
you will receive the bulk of the business profits, provided your operator is agreeable; and
you will not need to follow the Franchising Code of Conduct.
However, the disadvantages of using a management system include:
you will be responsible for the business set-up costs and ongoing expenses;
you are still the business owner so are responsible for its liabilities;
only certain types of operators will be willing to take on the risk and liability associated with management agreements;
you will likely have to pay high wages, so the operator is fairly compensated for taking care of the day-to-day operations;
in some cases, it may be easier to hire a manager as an employee;
there can be issues with who should hold public liability insurance; and you are still responsible for many of the legal risks of the business.
Key Takeaways
Franchise and management agreements are both methods of expanding your business. Therefore, your choice between these options should consider the nature of your business and the amount of ongoing control you need. Management agreements can be a great short term solution to run a franchise while finding a new suitable franchisee. However, as with any business decision, it is important to do your own research to gain a full understanding of your business expansion options https://legalvision.com.au/difference-between-franchise-management-agreement/
Reading 4: Hotel Management Agreements vs Hotel Franchise Operators
Introduction
For people not familiar with the hospitality sector, the hotel business structure can appear very complex at first sight. While walking by the front door of a hotel it is complicated to imagine the diversity of players involved in this business. Indeed, while some hotels are called independents, others highly rely on the cooperativeness between a brand, an owner and/or an operator. This article will focus on identifying the different business models through which a hotel can be managed.
What Are The Different Hotel Management Models?
Hotel investment is very complex as it requires a good understanding of what are the stakeholder's interests based on its operating model. Over time, the parties' profile getting involved in hotel investment diversified. As a result, the increasing expertise and financial support allowed creating better guests value. The globalization of tourism increased international travels, and therefore the demand for international branded hotels. As of of rooms were affiliated with a global or regional chain, and were independent (IHG, 2018). Looking at the largest hotel market, the US, the demand for branded hotels is expected to steadily rise in response to the change in development and financing in the upcoming years. In the US, of hotels are currently affiliated with a brand, as do of the pipeline rooms in construction (CoStar, 2021).
Based on their geographic localization but as well on their market segment, hotels can be operated through different business models:
Hotel Franchise contract
Hotel Management contract
Lease
There are three main types of players involved in the hotel business:
The operator, responsible for managing the hotel performance.
The owner, who owns the property or building.
The brand, who owns the brand name and expertise.
According to the type of agreement binding the parties, the operator and the brand can be one unique entity or separated players.
Hotel Franchise Operators
A hotel franchise is a fee-based agreement between a business owner, the franchisee, and a brand owner, the franchisor. The business owner - the property owner or tenant - can use the franchisor's brand name, intellectual property, reservation system and operational support tools in exchange for paying a franchise fee. The owner retains the control of the property as well as carries out the business-related liabilities unless the owner decides to hire a third-party operator to run the property on his behalf. Similarly, as the owner operates the hotel under the brand name, he is responsible for complying with brand standards and does not have any right approval over the brand changes.
The cost of a franchise includes two types of fees: the initial fee and the continuing fees.
The initial fee is paid upon submission of the franchisee application and covers all precontract charges such as market assessment, property inspections, and other services. The franchisor can give back the initial fee if the franchise is not agreed upon or decide to keep a percentage of it.
The continuing fees aim to align the interests of both parties and are paid monthly to the franchisor. Continuing fees are composed of a royalty fee, as well as marketing and reservation-related fees. The royalty fee represents the biggest source of revenue for the franchisor as it is most often calculated as a percentage of total room revenue. That is why, while settling an agreement, the royalty fee is one of the most important negotiating points upon which both parties aim to agree, along with other commercial terms such as Area of Protection, Key Money or Term length. The typical term for a franchise contract ranges between 10 and 15 years. Many contracts can agree on a ramp-up of those fees subject to other commercial terms application.
According to the market segment in which the hotel operates the franchise cost can vary when calculated as a percentage of the total room revenue. According to HVS, the median hotel franchise cost for an economic hotel is and increases in relation to its market. Upscale hotel franchise cost ranges around whereas upper-midscale and first-class categories register around and respectively (HVS, 2020). The franchise business model is very popular in North America and becomes more adopted by hotel groups due to its asset-light focus.
Hotel Management Agreements
A hotel management contract is an agreement between the same parties as for a franchise but does not point out the same responsibilities. Since 1963, when the first hotel under a management contract opened, this business model did not stop to improve and get more attention. In a hotel management contract, the operator/ brand is the manager (for example IHG) and the hotel owner is the managing owner (a financing group for example). The operator will run a specific brand hotel on behalf of the managing owner in exchange for a fee, most often heavily negotiated according to the responsibilities of each party. The owner is responsible for all risks such as employment contracts, property maintenance or FF&E. On the other hand, the operator is responsible for all management issues.
The hotel management agreement's fee structure is established in order to align the interests of both parties. The business owner pays different fees to the operator for running his business:
Base Management fee: to motivate the operator to focus on the top line, the business owner pays most often a percentage of the hotel's gross operating revenue, ranging from 2% to 4% (HVS, 2017). This fee can differ according to the hotel market positioning and can be whether fixed or gradually ramped up along the lifetime of the contract.
Incentive fee: to ensure that the operator focuses on profitability and therefore cost control, the business owner pays a percentage of the hotel's operating profit. The incentive fee can be calculated based on:
GOP (Gross Operating Profit): Profit left after deducting all department expenses from the revenue
AGOP (Adjusted Gross Operating Profit): GOP less Base Management Fee.
NCA (Net Cash): Amount of cash remaining after deduction of the total liabilities.
The calculation of incentive fees can become even more complex whether its calculation is based on a numerical or margin hurdle.
Other fees including marketing, reimbursements, loyalty programs, training etc.
Pros and Cons
Oros
Cons
Pros
Pro and Cons Hotel Franchise vs Hotel Management Contract
Franchise or Management Agreement?
Knowing the pros and cons of both a franchise and a management contract, it is easier to understand the hotel group's strategic position. There is not a one-size-fits-all model as operating internationally allows hotel groups diversifying their business model according to geographic and market positioning. However, the difference in market trade regulations between countries can be a limitation to their diversification. Although the franchise model is less prevalent in Europe than in the USA, it seems to gain popularity from owners looking to keep a hand on their business, and from hotel groups looking to expand their portfolio with a minimum of investments. Franchise accounts for three-quarters of the total European pipeline and management contracts for the remaining (HVS, 2015). Similarly, according to STR and JLL Research, Marriott International, Hilton Worldwide, Intercontinental Hotels Group and Choice Hotels International collectively represent of total franchised branded rooms (JLL, 2020). On the other side, hotel chains are still very reluctant to relinquish control over their luxury brands and favours management contracts to operate their luxury properties.
While looking at the market leader in Europe, Latin America, Middle East & Africa and the Asia Pacific, Accor operates of its hotels under management contract and under franchise (Accor, 2021), a good example of how hotel group manage their brand name across the world.
Each operating model comes with its own set of advantages and disadvantages, making it more or less attractive for owners and brand companies. While both parties have an interest in the hotel's success, their different risk profiles, source of income and investment strategies may lead to conflicting goals if those are not carefully considered when setting the commercial terms of the agreement.
Franchise Liability 101: Who is Liable for the Franchise?
The question of franchise liability can be a cause of concern for prospective or newly fledged franchisors and franchisees. However, the good news is that the rules are fairly simple. Let's break them down.
Franchise Liability: What are You Liable for As a Franchisee?
There are two key concepts you need to be aware of as a franchisee.
1. The "Dreaded" Personal Guaranty
It may sound scary, but it really isn't. It is standard practice for franchisors to request a personal guaranty from their franchisees. This guaranty is set out in the franchise agreement and requires you to back your financial and contractual obligations to the franchisor with your personal assets.
Most franchisors will be unwilling to waive the personal guaranty, but they may be open to negotiating certain provisions.
Any landlords, creditors, or lenders you deal with in your capacity as a franchisee are also likely to request a personal guaranty.
2. Limited Liability
But why would a franchisor specifically ask for a personal guaranty in the first place? Isn't the franchise agreement binding enough? It is - and it isn't.
Here's the great thing about franchise liability: it's limited.
Franchisors generally allow their franchisees to operate as legal entities (rather than as natural persons). The most popular legal structure with franchisees is the limited liability company.
What that means is that you can benefit from limited liability when dealing with third parties, including customers, employees, vendors, suppliers, and just about anyone else who isn't the franchisor.
If a third party sues the franchise, your personal assets - such as your property and the savings in your personal bank account - will be insulated.
Are Franchisors Liable for the Acts of Their Franchisees?
If you are a franchisor, you won't typically incur liability on behalf of your franchisees. That includes their contracts, debts, or any other obligations.
The whole point of a franchisee is that it is an entirely separate entity. The franchisee purchases the right to use your name, trademark, copyrights, trade secrets, and marketing system as an independent business.
However, there is one exception where you may be liable for a franchisee's obligations: when a court establishes that you have retained a high degree of control over their business. In such cases, the law will treat the franchisee as your agent or employee, and you will incur vicarious liability.
Examples of situations where a court may find a relationship of agency include:
The franchise agreement sets out stringent rules that govern the day-to-day operation of the franchisee
The franchisor carries out regular inspections of the franchisee facility
The franchisee shares profits with the franchisor instead of making royalty payments