Fair Franchising Is Not An Oxymoron

Hotel Interactive, Inc.:

In 1998, Asian American Hotel Owners Association chairman Mike Patel identified a set of standards by which to judge the actions of franchise companies. Now, 9 years later, AAHOA has updated the 12 points and has embarked on a survey of franchisors to assess their compliance with these fair franchising standards. In each of my next Hotel Interactive articles, I will highlight one of the 12 points.

Point 1: Early Termination and Liquidated Damages

A. Voluntary Buyout or Involuntary Termination and Liquidated Damages:
At the current time, if a franchise agreement is being terminated by either a franchisor or franchisee due to a voluntary buyout or involuntary termination, most franchisors are assessing liquidated damages (LDs) at unfair and unreasonable rates that penalize the franchisee. For example, many franchise agreements provide that the LDs will be calculated based on one of the following formulas: (1) by assessing a rate of $1,000 to $2,000 for each guest room of the facility, or (2) by multiplying the average monthly gross room revenues by the royalty fees payable in the remaining months of the franchise agreement, multiplied by the number of months until the franchisee could have terminated the agreement without penalty, not to exceed 36 to 60 months.

In the interest of fair franchising, a franchisee should only have to pay 6 months of royalty fees.

Carry on reading….