Hotel Franchises: A Potential Shift In Power?

There are few commercial relationships with a more inherent imbalance of power than that of a franchisor and franchisee. In the hotel industry, franchisors possess the intellectual property in the form of the brand name, the marketing power, and the reservation systems sought by the franchisees, and therefore can demand highly favorable terms in exchange for allowing a franchisee to be part of the brand's system.

Often, the franchise agreement is presented to proposed franchisees as non-negotiable because, as the argument goes, it is part of the Franchise Disclosure Documents approved by government regulators.

Consequently, franchise agreements generally afford franchisors wide latitude to direct franchisees in the conduct of their business and even empower franchisors to terminate the relationship and "pull the flag" if the franchisee does not comply with the franchisor's requirements.