HOUSTON — There is an ongoing shift in the relationship between hotel owners and the brand companies.
Jennifer Nellany, member at the law firm Cozen O'Conner, said that 15 years ago, she barely saw franchise agreements in her work
“Now that’s all I see,” she said at the Hospitality Law Conference.
Everyone wants to convert their brand-managed hotel to a franchise because it gives them more control, Nellany said. There has been significant growth and record market activity in hotel owners moving to the franchise model.
It’s a further evolution of the hotel brands moving from being hotel owners to the asset-light model, she said. Brands like the franchise model and the money it makes them.
“They certainly don’t want to own them,” she said. “For the most part, they don’t want the brand-managed hotels because brand-managed hotels come with the headaches of all the employment issues that we’ve talked about, so they don’t want that responsibility.”
Fee structures are under a lot of pressure because the hotel brand companies are moving to a primarily fee-based system, Nellany said. They’re focused on where they can get fees, so anyone working with brands will see as they set their budget year after year they have a whole suite of fees to figure out which bucket the services are for.
Having a strong asset manager who can come in and negotiate with the brands is essential, especially for those who are inexperienced, she said.
“You need to really have a sophisticated asset manager who can sit on top of these fees and really focus on what bucket they're all in, and how much you're getting charged, because there's a lot of pressure now as the franchisee base is growing,” she said. “They're pushing back on the franchisors.”
When negotiating with a hotel management agreement or franchise agreement, the strength of the negotiation depends on how much money the owner can make for the other side, Nellany said. A significantly profitable hotel can translate to more favorable terms in a franchise agreement not found in most others because the franchisor wants that particular hotel in its portfolio.
Having a track record of having successful hotels will also provide some leeway, she said.
The Asian American Hotel Owners Association is essentially the biggest group lobbying back against hotel franchisors, and it has created its 12 Points of Fair Franchising for owners, Nellany said.
“They are really pushing a lot of the disclosures and transparency in pricing and pushing back on the aggressiveness of the increase in pricing,” she said.
Because of the size of the organization, AAHOA has a lot of negotiating power with the hotel brands, she said.
A disclosure document tells franchisees what they to know about the franchise, Nellany said. It’s a large document that owners’ attorneys certainly read, but more hotel owners should as well.
Hotel owners and their attorneys should map specifically the service provided to the fee charged, she said.
“Oftentimes you’ll see the fees buried in some sort of technology services agreement, not in a franchise agreement itself,” she said.
Franchise agreements come with non-compete provisions that say after an agreement terminates or expires, it restricts the franchisee from competing with the franchisor within a certain area for a certain amount of time, Nellany said. These now have specific geographic coordinates showing the restrictive territory.
“You want to be very careful about defining exactly what you can and can’t do within the territory restriction, the brand restrictions and whatever other specifics that people have in their territory restrictions,” she said.
Virginia passed a new retail franchising act that goes into effect July 1 and makes it unlawful for a franchisor to restrict a franchisee from competing against it after an agreement expires or terminates, she said. There is a small exception on the mutually agreed to sale to a third party that can have a two-year, non-compete agreement, but it’s both a narrow situation with some ambiguity to what it actually means.
“I would fully expect over the next year or two to see a lot more states follow suit, and also to implement more strict provisions, even beyond the territory and non-compete restrictions,” she said.
The American Franchise Act, written to standardize rules about franchising and joint-employer standards, has been gaining a lot of steam, she said. The bill was introduced to Congress in 2025 to amend the Fair Labor Standards Act, but it currently remains in the House Committee on Education and Workforce.