Choice Hotels Revises Franchise Agreement

SILVER SPRING, MD? Choice Hotels International?s revision of its basic franchise agreement in March will limit damages assessed to franchises that do not refer guests to other Choice-branded properties. The decision to alter the wording of the agreement formalizes what was occurring on a case by case basis, according to Choice. Charles Ledsinger, the CEO of Choice, said the revision is aimed at keeping the franchise agreement competitive by reducing the cap on liquidated damages upon termination from 36 to 60 months. Choice expects franchisees to refer guests to other Choice-branded properties if unable to provide a room. Some hoteliers will refer a guest to another property they own, regardless of what flag it flies. ?This revision builds on our previous changes endorsed by licensees, which implemented five-year mutual outs for franchisees in good standing,? Ledsinger said, ?and eliminated change-in-control transfer fees when the ownership interest passes to a franchisee,? he said. Choice maintains that this is part of an ongoing process of revising the franchise agreement to respond to feedback from franchisees. ?Frankly, franchisees have been asking for this and we thought it was a fair thing to do,? Ledsinger said. ?We are constantly looking at the franchisee agreement and working with franchisees to make it work for everybody.? In addition, Choice added a 15% discount incentive for terminated franchisees if all damages are paid in full? along with other outstanding fees and charges? within 30 days of termination. Franchisees looking for the discount also must remove all Choice signage and trademarks from the property before the 30-day deadline. Ledsinger said that while franchise companies industry- wide have been accused of rigid policies, he believes Choice has a strong track record. ?If you look at Choice, it has been a very franchise friendly company, especially compared to a lot of other companies out there,? Ledsinger said. ?Choice is a pure franchise company now so that?s all we do? develop brands and sell franchise agreements. We dedicate 100% of our time to creating value for our franchisees.? Voices Are Being Heard With franchise organizations like the Asian American Hotel Owners Association (AAHOA) rapidly expanding membership, and with the proliferation of franchise brands, the collective voices of these groups have been speaking loudly. ?I think [franchisees]have always worked together as a group, I don?t think it?s any different than it ever has been in the past,? Ledsinger said. ?Groups like AAHOA want more flexibility. Any franchise organization reflecting the views of its constituency is going to be asking for more flexibility. Public companies have other constituencies, but they also have shareholders. We have to keep our business vital and strong and those things don?t always mesh.? Ongoing Process Ledsinger explained that it is an ongoing process for companies to balance the needs of franchisees with other aspects of running a successful hotel company. The challenge, he said, is to keep everything in balance. ?You?ve got to balance franchisee agreements with the business needs. Our job is to grow new brands and keep new products coming in,? he said. ?You have to keep your business practices in line with the realities of the marketplace.? Choice Hotels International is the world?s second largest hotel franchisor, with almost 4,000 hotels in 36 countries marketed under the Comfort, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn and MainStay Suites hotel brands.