Hotel franchise

A hotel franchise is a contract under which an independent operator (the franchisee) runs its hotel under the brand of a network (the franchisor). It benefits from the brand’s recognition, reservation system, loyalty programme and know-how, in return for an initial fee and ongoing royalties, often calculated on rooms revenue. The franchisee remains in charge of management: it employs the staff and bears the operating risk.

In the hotel sector

Before signing, the franchisor in France must provide a pre-contractual disclosure document (the so-called “loi Doubin” regime). The contract imposes brand standards covering room design, equipment and services, sometimes with a scheduled refurbishment programme. These requirements weigh directly on the operator’s capital expenditure.

In a transaction

A franchise may account for a significant share of distribution: its value to a buyer depends on how many bookings it actually brings. The points reviewed:

• remaining term and early exit conditions, with the related termination fee
• franchisor consent, required on a sale of the business and often on a change of control of the company
• works required of the buyer to meet brand standards on transfer
• territorial exclusivity and post-term non-compete clause

A buyer planning to change brand will cost both the exit and the repositioning. During the confidential phase, the teaser refers to an “international brand” or an “independent” hotel rather than naming the brand, which would identify the property.

Not to be confused with

A management agreement, where an operator runs the hotel on behalf of the owner, and membership of a voluntary chain or consortium, which usually carries lighter obligations.

To sell a branded hotel: selling a hotel.