Hotel & Motel Management - January 7, 2008 - (Page 14) 14 Franchise Law IN THE details Working together is key Policies help reduce issues Balance is an important goal Legal cases favor franchisors H&MM January 7, 2008 | HotelMotel.com www.HotelMotel.com/digital_edition Good relationships reduce impact disputes mpact issues continue to be a significant challenge in franchising and, in particular, within the hotel industry. One foundation of a successful franchise operation is the franchisor maintaining good relations with its franchisees, and this is especially true in the hotel industry, which has capitalintensive franchises. Failure of a I By Mort Aronson H&MM Columnist franchisor to manage impact effectively within its hotel system can lead to litigation and ill will. The hotel industry has managed impact issues more effectively than the vast majority of other franchise industries. Franchisees need to understand that in order for a hotel chain to continue to succeed, the system needs to grow and expand. Franchisors need to be sensitive to the fact that in growing their system, they need to be understanding of legitimate franchisee concerns about impact. Most hotel systems have impact procedures and policies in place in which market studies are implemented in appropriate circumstances to evaluate projected impact of a new project on ex- isting franchisees in the relevant market. The hotel franchisors set a level of impact, and projects will not be approved if the projected impact exceeds acceptable levels. In those instances where a project is approved and the actual impact exceeds the projected market impact and results in an unacceptable level, franchisors often will extend financial relief, usually through royalty reductions for a period of time, to the negatively affected franchisees. On the other side of the coin, when market studies project unacceptable levels of impact but the franchisor is highly motivated to proceed with the new project, the franchisor will offer financial incentives up front to the negatively affected franchisees in order to proceed with the new project. The franchisor has the responsibility and is in the best position to determine appropriate growth for its franchise system. Most hotel franchise agreements give franchisors wide latitude in adding units to its system. The vast majority of legal cases during the past 20 years have favored franchisors when challenged by franchisees about new hotel projects in their markets. There have been several notable exceptions. In 1991, the Scheck v. Burger King Corp. case indicated in substance that it was a jury question whether the system expansion of a Burger King was legitimate, denying Burger King’s motion for summary judgment. This ruling caused alarm among franchisors and enthusiasm among franchisees. Since 1991, the Scheck ruling has been overruled, reinforcing franchisors’ rights to expand their systems as they determine. Appropriate business considerations motivate franchisors to proceed with balance and consideration of franchisee concerns, although franchisors and franchisees might not agree on the final results in all instances. hmm@questex.com Mort Aronson is an attorney with the international law firm of Kilpatrick Stockton LLP, which is based in Atlanta. He can be reached at (404) 745-2414. CIRCLE NO. 137 http://www.HotelMotel.com http://www.HotelMotel.com/digital_edition http://www.hmrsss.com
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