Hotel Brand Franchise Agreement

The franchise agreement is a legal licensing agreement between the hotel brand and the hotel owner, which gives the hotel owner the rights and obligations to operate the hotel under the franchiser`s brand for a fee. Even though franchise agreements are designed in favor of brands, most owners are more than happy to sign them, because the right flag (and its reservation system) is extremely advantageous for the owner`s business. The right flag can significantly increase hotel occupancy and room prices and increase the value of a hotel by 20% to 40% compared to «unmarked» or lower brand options. Hotel groups need hotel owners to increase their network footprint and generate fees on the services offered, and on the other hand, hotel owners need hotel groups to choose from prestigious brands and take advantage of powerful distribution and loyalty systems, the latest technology skills and teams of inpatient experts. This win-win agreement turns into either a franchise agreement or a management contract. A franchise agreement is generally negotiable and can range from one year to an indeterminate period of years. The most common example of a franchisor is McDonalds, the world`s largest franchise network. In the hotel industry, franchises are widespread because they allow independent hotels to benefit from the marketing power of large brands or companies. This gives them a greater reach far beyond anything their own resources could buy. In addition, the franchisee benefits from advice, SOPS, simple corporate financing, support and security and overall less likely to fail. On the other hand, being a crosser means losing control over many aspects of one`s own business. The franchisor is required to provide all brand standards and provide mandatory services.

Given this scenario, the hotel brand (such as Marriott, IHG, Hilton, Accor/SBE) is the manager and the owner of the hotel is the managed owner. They signed a hotel management contract for a hotel brand (like Ritz Carlton, Sofitel). The owner of the hotel bears all the risk of exploitation. They also charge basic taxes, trademarks, incentive fees, marketing fees, sales and loyalty fees, IT fees and more. Hotel management agreements can be long and complex. These hotels belong to many different types of owners, wealthy individuals, businesses or even institutions that all want to maximize the business of their property. They therefore turn to hotel groups to provide services and support their activities. The franchise agreement is the legal contract that binds a franchisor and a franchisee into the company. According to the 2015 HVS study, the franchise agreement represented a juicy part of the portfolio of major hotel chains more than in Europe, as shown in the table of the cake below.