The fee structure of the hotel management contract is established in order to reconcile the interests of both parties. The business owner pays the operator a different fee for running his business: in most cases, the first draft of a management contract is provided by a potential hotel manager to a hotel owner. It generally gives managers a long-term right to operate the hotel, with ownership participation largely limited to the annual budget approval process. However, unlike franchise agreements, owners have more influence over the agreement when negotiating a management agreement. Savvy owners can often require a manager to agree to major revisions to their standard form of administrative agreement. Daniel R. Weede is a shareholder in carlton Fields` Atlanta office. He has extensive experience representing hotel brands, owners, investors, developers, lenders and managers in all aspects of hotel ownership, administration and financing. He is co-founder and past president of the Atlanta Hospitality Alliance, an Atlanta-based networking and education group for the hospitality industry with approximately 300 members that meets quarterly to discuss trends and developments in the hospitality industry. Depending on the market segment in which the hotel operates, franchise costs may vary when calculated as a percentage of total room revenue.

According to HVS, the median cost of the hotel franchise for a cheap hotel is 8.6%, up from its market. The cost of high-end hotel franchises is 11.4%, while the upper mid-range and first-class categories are around 12.1% and 12.4%, respectively (HVS, 2020). The franchise`s business model is very popular in North America and is increasingly being adopted by hotel groups due to its focus on the lightness of assets. Christine Ravanat of AccorHotels explains how large hotel groups are expanding their presence on the network through franchise or management agreements, a win-win agreement for hotel groups and owners. Hotel franchise agreements To maximize RevPAR (and secure equity investors and financing), owners typically turn to a large hotel brand to “label” their hotel with an appropriate hotel brand. The right flag can significantly increase hotel occupancy and room rates, and increase a hotel`s value by more than 20% to 40% compared to “unmarked” or weaker branding options. The document that formalizes your rights and obligations is the hotel license agreement or franchise agreement. There are dozens of important terms in the franchise agreement; However, the vast majority of these terms are non-negotiable. The key to successfully negotiating with a brand is to understand what conditions are open to negotiation in certain situations. According to a 2015 HVS study, the franchise agreement represented a significant part of the portfolio of large hotel chains more than in Europe, as shown in the following pie chart. HVS also pointed out that franchise agreements will certainly continue to increase due to the number of reasons: “Franchising is expected to continue to gain traction as a preferred operating model for a number of reasons: large chains have increasingly focused on franchising to achieve the desired pace of expansion; Third-party vendors have proven to be competent in bridging the gap between owners and branded businesses.

and small independent hotels in secondary locations are turning to flexible and less standardized franchisors to stay competitive. Although the type of agreement chosen is important for the hotel group, it has no impact on customers. Based on the application of the brand`s standards, they benefit from the same experience, whether they are staying in a franchised or managed hotel of the same brand. Although very few legal terms of the franchise agreement are open for negotiation if they are addressed during the negotiation of the term sheet before the trademark is approved by the committee, there are several terms and conditions that owners can negotiate. Owners have more influence on economic conditions when they develop the hotel rather than buying a stabilized asset. The terms that apply as terms and conditions and can be negotiated are: Choosing a hotel brand and a hotel manager are two of the most critical decisions hotel owners can make, but many don`t fully understand key key issues or don`t attempt to negotiate their franchise and management agreements. This article deals with the essential and frequently negotiated issues in these agreements. The franchise agreement is a legal license agreement between the hotel brand and the hotel owner that gives the hotel owner the rights and obligations to operate the hotel under the franchisor`s brand for a fee. .