Franchising, management contract and vacation ownership of hotel business

Franchising

Besides the information on franchising, which we had already learnt in class, here are some additional information about the agreements of franchising.

Before entering a Franchise Agreement:

  • You should obtain an information statement from the franchisor. It is basically a short document that gives you information regarding the risks and rewards of joining the franchising company.
  • Once you have officially agreed to sign a contract, the franchisor should give you the franchise agreement in its final form at least 2 weeks (14 days) before the official signing of the contract. This is in order to make a non-refundable payment.

Franchise Agreements Information:

  • If you are signing a contract with strong franchise companies, the terms and conditions are normally non-negotiable. The owners are very stringent about the contract and do not provide much flexibility to the franchisee.
  • The agreement mostly affects or is for one person/company only, which is the franchisor. All the stated agreements, or points are generally for the benefits of the franchise itself (in one perspective).
  • The contact is filled with a list of to-dos. The contract consists of a lot of rules. These lists help the franchisees prioritize how they are supposed to run the company and what should be the crucial steps in their operations. Besides that, there is also a list of can’t dos. This list is mostly common sense, but it also includes some of the operating factors.

Some of the most popular information/areas covered in a franchise agreement in New Zealand are as follows:

  • Grant
    Franchisor giving the right to a franchisee to operate the business
  • Term
    Normally is the time frame of the contract period. E.g. 5 years
  • Territory
    The area in which the franchise is located and can stand out from other competitors.
  • Fees
    3 types – (The initial franchise fee, ongoing fees and one off fees )
  • Training
  • Approved Suppliers
    Suppliers who are initially approved by the franchisor will be one the franchisee purchases their materials/goods from.
  • Reporting Obligations
    e.g. reporting gross sales on a weekly/monthly basis
  • Intellectual Property and Confidential Information
  • Advertising Fund
    Franchisee pays an ongoing fee to the franchisor for advertisement purposes.
  • Insurance
  • Premises
    Follow the rules and show proof of the premises rented out for the operations of the franchise.
  • Non-Competition
    It restricts the franchisee from conducting similar business before or after their contract for a specific period of time.
  • Renewal
  • Transfer
    e.g. selling out the franchise to someone else
  • Cooling off Period
    Limited amount of time given to the franchisee once the agreement is signed.
  • Termination
  • Dispute Resolution
  • Guarantee
    Shareholders and directors are requires to personally guarantee the company’s obligations under the franchise agreement if the franchise is a company.
Examples of Popular Franchise Hotels
1) Wyndham Hotels and Resorts

Picture of Wyndham Hotel in Austria
Picture of Wyndham Hotel in Austria [27]
The estimated number of units currently is 7,600, as it has been franchising since 1990s. Also, there are also 14 brands under this name. The franchisee who wishes to operate a Wyndham franchise will utilize the system given to operate an upscale full-service Wyndham Hotel, resort or even a Grand Hotel, or upscale a selected service of a Wyndham Garden Hotel.

2) Marriott International

Photo of Marriott Hotel in Beijing
Photo of Marriott Hotel in Beijing [28]
They began franchising in 1967 and have gradually grown to include a total of 4,200 units. They are a worldwide operator and a franchisor of hotels related to lodging facilities. They have 5 different business segments for their business operations. They are namely the North American Full-Service Lodging Segment, North American Limited- Service Lodging Segment, International Lodging Segment, Timeshare Segment and Luxury Lodging Segment.

2) Hilton Hotel

Hilton Hotel in the United Kingdom
Hilton Hotel in the United Kingdom [29]
They began franchising in 1965 and have gradually grown to having 560 units as of today, with 4,440 systems wide across all brands. Franchisees that wish to open their franchise are granted access to use their system. This enables them to access the reservation system, advertising, training programs and materials, standards, specifications..etc.


Management Contract

The owners do not have operational ability and desire to operate the hotel and they may want to form a partnership with hotel management companies who would help the owners to operate the hotel and they would get a management fee in return (Walker & Walker, 2013)[1].

Usually, there are brand operators and independent operators for the hotel management companies (Detlefsen & Glodz, 2013)[2].

Brand operators

Brand operators are also the branding companies who could have experienced management and the hotels could be benefited from the well-known brand[3]. The owners do not need to pay full amount of franchise fee if they choose brand operators[4]. Examples: Hyatt, Hilton and Marriott[5].

1  (Grand Hyatt in Hong Kong[6])

Independent operators

Small and middle size of the hotels usually form a management contract with the independent operators[7]. Sometimes, the owners may be willing to pay more cost if they form a partnership with the independent operators as the initial term is shorter and the owners believe that the independent operators could be more flexible in the local markets[8]. Examples: HVS Hotel Management, Dora Hotels and Hostmark[9].

Vocation Ownership

There are two types of vocation ownership: vacation interval plans and timeshares. Purchasing both of them, customers need to pay initial purchase price and maintenance fees regularly[10].

The buyers of the timeshare would have the right to use the vacation unit at a specific time and they own the resort property together with other owners[11]. Legally, the buyers are owning real property[12].

Buyers of the vocation interval plans would have the right to use the intervals (each unit is divided into different time intervals or points) and the buyers are having the personal property legally[13]. There are different types[14]:

  • Fixed time: The buyers could use the unit for a specific week.
  • Floating time: The buyers could use the unit in certain season but they need to make reservation in advance and the format would be first-come, first-served.
  • Fractional ownership: Buyers could have more time to use the unit (up to 26 weeks)
  • Biennial ownership: Buyers could use the unit every other year.
  • Points-based vacation plans: Buyers need to buy a certain amount of the points and use different amount of points to use the units.

As a buyer, you may need to pay attention to some aspects before you buy it. For example, you should do some research regarding to the location, availability of the units, service quality and complaints of the units or plans[15]. Also, you need to think twice or more before buying the vocation ownership as the plans may be offered during the trips[16]. Furthermore, you may need to check the terms and conditions carefully so that your interest would be protected, e.g. the right to cancel the contract[17].

Wyndham Vacation Ownership

Wyndham Vacation Ownership is one of the provider of products of point-based vacation ownership and it provides over 200 choices of resorts in the USA[18].

2New Zealand: WorldMark Resort Rotutua[19]

Disney Vocation Club

Disney Vocation Club is also using point-based system. It provide 13 themed Disney Vocation Club resorts or other places around the world.

3Disney’s Polynesian Villas & Bungalows[20]

Marriott Vacation Club

Marriott Vacation Club also uses a point-based system[21]. There are different plans provided and you may visit http://www.marriottvacationclub.com/timeshare-ownership/where-can-i-go.shtml.

3

Marriott’s Kauai Beach Club[22]

For more details of different providers of vacation ownership, please visit http://vacation-club-review.toptenreviews.com/.

References

[1] Walker, J., & Walker, J. (2013). Introduction to Hospitality Management: Pearson New International Edition (4th ed., international ed., pp. 59-61). Harlow: Pearson. Retrieved 27 September 2014.

[2] Detlefsen, H., & Glodz, M. (2013, March 7). Hotel Management Contracts: Historical Trends. – Thursday, 7th March 2013 at 4Hoteliers. Retrieved September 28, 2015, from http://www.4hoteliers.com/features/article/7493

[3] Ibid

[4] Ibid

[5] Ibid

[6] Hyatt hk. (n.d.). Retrieved September 28, 2015, from https://www.google.com.hk/search?q=Hyatt+hk&biw=1366&bih=603&source=lnms&tbm=isch&sa=X&ved=0CAkQ_AUoAmoVChMIibHWkMuYyAIVBRumCh2DlQHB#imgrc=WGK5FRhIPcHF_M%3A

[7] Ibid

[8] Ibid

[9] Ibid

[10] Consumer Information. (n.d.). Retrieved September 28, 2015, from http://www.consumer.ftc.gov/articles/0073-timeshares-and-vacation-plans

[11] Ibid

[12] Ibid

[13] Ibid

[14] Ibid

[15] Ibid

[16] Ibid

[17] Ibid

[18] Wyndham Vacation Ownership | Wyndham Worldwide. (n.d.). Retrieved September 28, 2015, from http://www.wyndhamworldwide.com/category/wyndham-vacation-ownership

[19] Ibid

[20] Disney’s Polynesian Villas & Bungalows. (n.d.). Retrieved September 28, 2015, from https://disneyvacationclub.disney.go.com/discover/destinations/resorts/polynesian-villas/

[21] Discover Unforgettable Vacations in Hawaii. (n.d.). Retrieved September 28, 2015, from http://www.marriottvacationclub.com/csd/featured-des/pac-islands/hawaii.shtml

[22] Discover Unforgettable Vacations in Hawaii. (n.d.). Retrieved September 28, 2015, from http://www.marriottvacationclub.com/csd/featured-des/pac-islands/hawaii.shtml’

[23] Australian Competition and Consumer Commission,. (2015). Franchise agreements. Retrieved 28 September 2015, from https://www.accc.gov.au/business/franchising/franchise-agreements

[24] Daley, J. (2015). 10 Things About Franchise Contracts- Part 1. Entrepreneur. Retrieved 27 September 2015, from http://www.entrepreneur.com/article/249231

[25] Fortunemanning.co.nz,. (2015). What Is In A Franchise Agreement?. Retrieved 27 September 2015, from http://www.fortunemanning.co.nz/Publications/Franchising/What+is+in+a+franchise+agreement.html

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