Hotel & Motel Management - November 3, 2008 - (Page 20)

20 Franchise Law IN THE details Take care in terminations Multiple reasons to terminate New franchisor might pay Follow proper protocol H&MM November 3, 2008 | HotelMotel.com www.HotelMotel.com/digital_edition Changing ﬂags can have legal ramiﬁcations he subject matter of terminations is a constant issue in the franchising community and especially in the hotel industry. What often is not discussed and what warrants serious attention are the legal sensitivities in hotels changing brands after a termination. The reasons for terminations in the hotel industry are T By Mort Aronson H&MM Columnist multiple, including poor product quality, non-payment of fees, poor performance (either from the franchisor or the franchisee) and having the wrong type of hotel in a particular market. The franchisor traditionally is looking for liquidated damages (usually between two to three years of franchise revenue) and the franchisee often is claim- ing inadequate servicing by the franchisor, thereby alleging a basis for signiﬁcant reductions in liquidated damages or the total elimination thereof. Franchisees sometimes allege the liquidated damages are a penalty and hence unenforceable, but they are rarely, if ever, successful with this argument. The franchisor usually is willing to negotiate the YOU SHOULD GET TO KNOW US solutions@ac-quest.com LG™ - .SVIHS SLHKLY M\SÄSSPUN /V[LS 0UK\Z[Y` ULLKZ MVY `LHYZ AC Quest 6MMLYPUN H MHJ[VY` KPYLJ[ SPUR [V [OLZL X\HSP[` WYVK\J[Z Call NOW! (888) 410-2310 Hospitality Division www.ac-quest.com amount of liquidated damages if the product quality is poor and it wants to remove the hotel from its market. On the other hand, if the franchisee is the primary mover on the termination because of its desire to afﬁliate with another hotel chain, the franchisor losing the desired hotel product usually will insist on full liquidated damages. But here’s the rub: If the franchisor losing its hotel product to a competitor can establish the new chain induced the franchisee to terminate its existing hotel franchise to acquire the hotel within its chain, the new franchisor could be subject to punitive damages that may far exceed the amount of liquidated damages. For the new franchisor to obtain an indemnity agreement from its new franchisee to ostensibly protect the new franchisor from such interference with contractual relations claims is inadequate. In the vast majority of instances, the courts have determined such indemnity agreements will not be upheld. Hotel franchisors acquiring new hotels from other hotel chains need to exercise care to ensure the facts establish they did not solicit and encourage the termination of the existing franchise, and that the termination was independently decided and implemented by the potential new hotel franchisee. Further sensitivities need to be evaluated on the propriety of the new franchisor paying all or some of the liquidated damages to facilitate the termination to enable the new franchisor to acquire the terminated hotel in its chain. It is in the best interest of all parties concerned that all necessary items are attended to, including payment of liquidated damages with the obtaining of releases from both the franchisor and franchisee of the terminated hotel. hmm@questex.com Mort Aronson is counsel with the international law ﬁrm of Kilpatrick Stockton LLP, which is based in Atlanta. He also is an adjunct professor at Emory Law School. He can be reached at (404) 745-2414 or MAronson@ KilpatrickStockton.com. CIRCLE NO. 104 http://www.HotelMotel.com http://www.HotelMotel.com/digital_edition http://www.ac-quest.com http://www.ac-quest.com

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Hotel & Motel Management - November 3, 2008 Contents The Rate Debate Accor Defines Motel 6 Prototype Rollout Holiday Inn Eyes Upscale, Timeshare Perspective Economy Sets Tone at The Lodging Conference Mellow Vibe Meets Bold Design at HD Boutique Expo IH/M&RS to Focus on Going Green Legally Speaking Sales Clinic On Finance Travel Trends Cornell Insights Franchise Law HotelWorld Update Trends & Stats Energy Star Update Energy Star Update An Industry Connected People on The Move Annual GM Survey Point-of-Sale Systems IH/M&RS Product Preview Outdoor Lighting Refrigeration Marketplace Ad/Editorial Index Classifieds Checking Out

Hotel & Motel Management - November 3, 2008

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