Transferring Franchise Agreements: The Deal You Save May Be Your Own

Your hotel's flag is a very important asset to you. It is probably going to be just as valuable to your buyer. It means everything to the franchisor. You may have a great relationship with your franchisor, but have you even stopped to consider what will happen when you ask that franchisor to approve an assignment of that valuable franchise to your buyer? Maybe you're very familiar with what your franchise agreement clearly provides. You may not be quite as familiar with what is not so obviousópowers the franchisor actually and practically has under the franchise agreement and what affect these powers can have on your ability to sell or even mortgage your hotel property, if you want that branding to be included in your deal.

You must be aware of the hidden powers that are not revealed from even a careful review of the franchise agreement. These hidden powers typically remain unrecognized and are only exposed at a time when they could cause the most harm: when an owner attempts to sell or mortgage its property.

Effectively, a franchisor has the power and ability to introduce unexpected issues that could cause delays in a sale or loan transaction relating to the hotel. Is there anything a franchisee/seller can do to avoid these potentially deal-killing hurdles? Fortunately, the answer is a clear YES.

Just What Are These Problems?

Why can't I get the franchisor to make a decision? The turnaround time to obtain the consent of the franchisor does not happen in the timeframe we need or wantóbefore the end of the buyer's due diligence period, for example. More often than not, your request for the franchisor's consent to the transfer must go through numerous levels of review and be processed by several departments prior to it being finally considered by the appropriate party. Each of these levels and departments (the legal department being just one) has its own guidelines and requirements that are reviewed by a staff person, without any authority to compromise or deviate from strict requirements of the franchise agreement or franchisor policy. Try asking a staff person to make your request a priority. Their response will probably be, ìYour request will be processed in the order in which it is received.î You expect the next statement to be ìThis is a recording.î

Where Is the Operator In All This?

Franchisors are generally less concerned with the entity that will own the hotel property than in the entity that will be responsible for the management...