Hotel & Motel Management - September 1, 2008 - (Page 8) Legally Speaking sor and designed for the franchisor’s benefit. And breaking up is hard to do. A few recent cases underscore the need for caution before saying “I do.” H&MM September 1, 2008 | HotelMotel.com www.HotelMotel.com/digital_edition On franchise agreements: Breaking up is hard to do It’s all in the contract N Two case studies N Liquidated damages add up N Read disclaimers carefully By Karen Morris H&MM Columnist IN THE details Country Inns & Suites A Country Inns & Suites franchisee in Florida signed a 15-year contract. After paying the initial buy-in fee of $40,000 and operating the facility for two years, the owner decided to escape the hurricanes. He sold the hotel to a buyer who opted to run it as a Holiday Inn Express. This meant lost revenue for Country Inns, which sued the seller for breach of contract. The franchise agreement included a liquidated damages clause, meaning a contract provision that identifies the amount of damages (money) that will be paid in the event of breach by the breaching party (here, the franchisee) to the nonbreaching hotelier’s relationship with a franchisor has attributes in common with a marriage. Both parties hope the relationship will endure and be mutually beneficial. Each party’s financial circumstance is reliant upon the other’s success. Just as a prenuptial agreement involves a waiver of rights by one party, a franchise agreement customarily is prepared by the franchi- party (franchisor). Such clauses are enforceable in court, provided the amount of money specified in the clause is not grossly disproportionate to the loss incurred by the nonbreaching party, and the calculation of the actual loss is difficult. The liquidated damages clause provided that the franchisor was entitled to three times the royalty and marketing fees (4.5 percent and 2.5 percent of daily gross room revenues, respectively) for the 12 months of operation immediately preceding the date of termination. The franchisee argued that this amount resulted in a windfall to the franchisor. The court, however, found that the formula was not grossly disproportionate to damages the franchisor would likely suffer and also noted that if the franchisee could sell to anyone without consequence, the 15-year agreement “would be gutted.” The franchisee was thus obligated to pay $341,675.49. Travelodge In another recent case, a Travelodge franchisee refused to pay the franchise fee because a 15-percent increase in hotel income promised by the franchisor’s salesman did not materialize. Both the Uniform Franchise Offering Circular (prospectus) and the franchise contract contained a disclaimer stating, “You acknowledge that no salesperson has made any promise or provided any information to you about projected sales, revenues, income, profits or expenses except as stated” in this agreement. The documents did not reference the touted 15-percent increase. Travelodge sued for unpaid fees. The franchisee claimed he had been fraudulently induced to sign the agreement and so denied liability. To prove fraudulent inducement, the franchisee must show it relied on a false statement to its detriment. The court, citing the multiple disclaimers in the franchise documents, rejected the notion that the franchisee relied on the salesperson’s profit projections. The court thus found in favor of the franchisor. The lessons from these cases are rich. Pick your franchise partner carefully; scrutinize the contract before signing; anticipate that it will favor the franchisor and negotiate unacceptable terms; involve your attorney in the negotiations; if you have an irreparable falling out with the franchisor, cease using its name. Better yet, try not to go to bed angry. hmm@questex.com Karen Morris is a lawyer, municipal judge and Distinguished Professor at Monroe Community College in Rochester, N.Y., where she teaches hospitality law. Contact her at kmorris222@yahoo.com. Satisfaction Trends Timeshares lead industry in customer satisfaction The timeshare industry clearly is doing a lot of things Vacation ownership segment expands right, including satisfying its N Highest guest satisfaction customers. Since Market MeN High rate of problems trix began tracking the indusN Leading brands try in 2004, timeshare accommodations have received rave reviews from guests. In 2007, By Jonathan By Lenny timeshares outperformed all Barsky Nash other industry segments in H&MM H&MM overall customer satisfaction. Columnist Columnist But why are timeshares more pleasing to guests? Timeshare companies, discovering the lucrative opportuniany vacation-goers rarely ties, have invested significant want to visit the same place resources to protect and grow their custwice. Timeshares (aka “va- tomer base. Also, due in part to an induscation ownership”) offer the opportunity try known for its aggressive sales tactics, to “buy the hotel” and explore different customer expectations tend to be lower locations through exchange agreements. for this segment. More professional marThis innovative concept has flourished keting and properties with plush ameniand continues to expand. Sales were up ties have pleasantly surprised many. 6 percent in 2007 and have jumped 66 In 2007, timeshare customers reportpercent since 2003. Average occupancy ed feeling more excited, inspired and enwas over 80 percent in 2007 (including tertained from their experiences than owners, exchange guests and renters). other hotel guests. Cleanliness of guestThis “slice” of the industry foreshadows rooms and bathrooms were also rated perennial profits, with an optimistic eco- higher than other hotel segments. nomic forecast. Despite overall high customer satis- IN THE details faction, there are vulnerabilities in this segment. The rate of problems reported by timeshare guests is among the highest in the industry (14 percent), much higher than luxury hotels (9 percent). Customers will demand more. Timeshares also appear vulnerable in customer service (e.g., employees’ can-do attitude, friendliness of front desk staff, telephones answered quickly). Although, among these important customer experience dimensions, timeshare brands exceeded industry averages. Leading timeshare brands RCI is the world’s leading timeshare exchange broker, with more than 3 million member timeshare owners. But other brands outperform RCI in customer satisfaction and are taking a bigger bite out of the rapidly growing vacation ownership market. For 2007, Disney Vacation Club and Trendwest Resorts hold significant leads in customer satisfaction over RCI and other leading brands. These two leading brands also showed the biggest improvements in customer satisfaction (up 1 and 0.9 respectively) while Fairfield Resorts and Starwood Vacation Ownership M posted the biggest declines (-2.3 and -2.4 respectively). Successful timeshare companies understand that positive word-of-mouth referrals are a powerful sales tool. If a guest isn’t satisfied, the biggest costs are due to loss of future business and negative word-of-mouth communication. In addition, with a growing number of onetime renters occupying the units, a positive experience not only encourages them to return, but is crucial to getting them to purchase. Howard Nusbaum, American Resort Development Assn. president and CEO, said, “The continued growth of the timeshare industry in today’s economy is a direct indication of strong consumer satisfaction … Vacation ownership, with its flexibility and spacious accommodations, continues to be a preferred travel choice for American families.” hmm@questex.com Jonathan Barsky and Lenny Nash work for Market Metrix LLC (www.MarketMetrix. com), a firm that provides customer and employee programs for the hospitality industry. For more information, call (800) 239-7515. CIRCLE NO. 116 http://HotelMotel.com http://www.HotelMotel.com/digital_edition http://www.MarketMetrix.com http://www.MarketMetrix.com
Table of Contents Feed for the Digital Edition of Hotel & Motel Management - September 1, 2008 Hotel & Motel Management - September 1, 2008 Contents Element LEEDs Brand-wide Promise NABHOOD Speakers: Hold Rates Perspective Letters to the Editor Legally Speaking Satisfaction Trends AAHOA Update Energy Star Update Marketing Matters Events HotelWorld Update Trends & Stats Coffee Services Business Equipment Ad/Editorial Index Marketplace Classifieds Checking Out Hotel & Motel Management - September 1, 2008 Hotel & Motel Management - September 1, 2008 - Hotel & Motel Management - September 1, 2008 (Page 1) Hotel & Motel Management - September 1, 2008 - Hotel & Motel Management - September 1, 2008 (Page 2) Hotel & Motel Management - September 1, 2008 - Contents (Page 3) Hotel & Motel Management - September 1, 2008 - NABHOOD Speakers: Hold Rates (Page 4) Hotel & Motel Management - September 1, 2008 - NABHOOD Speakers: Hold Rates (Page 5) Hotel & Motel Management - September 1, 2008 - Letters to the Editor (Page 6) Hotel & Motel Management - September 1, 2008 - Letters to the Editor (Page 7) Hotel & Motel Management - September 1, 2008 - Satisfaction Trends (Page 8) Hotel & Motel Management - September 1, 2008 - Satisfaction Trends (Page 9) Hotel & Motel Management - September 1, 2008 - AAHOA Update (Page 10) Hotel & Motel Management - September 1, 2008 - AAHOA Update (Page 11) Hotel & Motel Management - September 1, 2008 - Energy Star Update (Page 12) Hotel & Motel Management - September 1, 2008 - Energy Star Update (Page 13) Hotel & Motel Management - September 1, 2008 - Marketing Matters (Page 14) Hotel & Motel Management - September 1, 2008 - Marketing Matters (Page 15) Hotel & Motel Management - September 1, 2008 - Events (Page 16) Hotel & Motel Management - September 1, 2008 - HotelWorld Update (Page 17) Hotel & Motel Management - September 1, 2008 - Trends & Stats (Page 18) Hotel & Motel Management - September 1, 2008 - Trends & Stats (Page 19) Hotel & Motel Management - September 1, 2008 - Trends & Stats (Page 20) Hotel & Motel Management - September 1, 2008 - Trends & Stats (Page 21) Hotel & Motel Management - September 1, 2008 - Coffee Services (Page 22) Hotel & Motel Management - September 1, 2008 - Coffee Services (Page 23) Hotel & Motel Management - September 1, 2008 - Coffee Services (Page 24) Hotel & Motel Management - September 1, 2008 - Coffee Services (Page 25) Hotel & Motel Management - September 1, 2008 - Business Equipment (Page 26) Hotel & Motel Management - September 1, 2008 - Business Equipment (Page 27) Hotel & Motel Management - September 1, 2008 - Business Equipment (Page 28) Hotel & Motel Management - September 1, 2008 - Business Equipment (Page 29) Hotel & Motel Management - September 1, 2008 - Ad/Editorial Index (Page 30) Hotel & Motel Management - September 1, 2008 - Ad/Editorial Index (Page 31) Hotel & Motel Management - September 1, 2008 - Marketplace (Page 32) Hotel & Motel Management - September 1, 2008 - Classifieds (Page 33) Hotel & Motel Management - September 1, 2008 - Classifieds (Page 34) Hotel & Motel Management - September 1, 2008 - Classifieds (Page 35) Hotel & Motel Management - September 1, 2008 - Classifieds (Page 36) Hotel & Motel Management - September 1, 2008 - Classifieds (Page 37) Hotel & Motel Management - September 1, 2008 - Checking Out (Page 38) Hotel & Motel Management - September 1, 2008 - Checking Out (Page 39) Hotel & Motel Management - September 1, 2008 - Checking Out (Page 40)
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