Hotel franchising allows new and experienced entrepreneurs and hoteliers to jump into a competitive market. The demand for quality accommodations is rising as the province continues to attract a diverse range of travellers, from business professionals to adventure seekers. This is particularly true given the increase in alternative accommodations and vacation rentals. In this thriving environment, hotel franchising has proven to be a strategic avenue for both seasoned hoteliers and aspiring entrepreneurs to establish and grow their businesses.
This blog will provide an overview of the intricacies of hotel franchising in Ontario, with a particular focus on franchise and license agreements.
The Rise of Hotel Franchising in Ontario
Ontario’s vibrant cities and picturesque landscapes have positioned it as a prime destination for travellers worldwide. As the tourism industry continues to grow exponentially, so does the growth of hotel franchises. These franchises offer a unique blend of brand recognition, operational support, and a proven business model, making them an attractive proposition for individuals looking to enter the hospitality sector. By opting to franchise a hotel, entrepreneurs can gain an opportunity to enter the industry with the support and benefit of the existing brand.
Like any business, entrepreneurs aim to be successful, and having a long-term license or franchise agreement can bring stability and comfort. However, prospective franchisees need to have a thorough understanding of their agreement before executing any document. Obtaining legal advice from a trusted corporate/commercial lawyer can help demystify ambiguities and ensure you understand your rights, responsibilities, risks and liability under the contract in case of a challenge or dispute. By mitigating and addressing concerns proactively, you can feel at ease knowing your rights and investments are sufficiently protected.
Decoding Franchise Agreements
At the heart of every successful hotel franchise is a well-crafted franchise agreement that serves as the blueprint for the relationship between the franchisor and the franchisee. These contracts outline the parties’ rights, responsibilities, and expectations throughout the relationship. From brand standards and marketing support to financial considerations and operational guidelines, franchise agreements are pivotal in establishing a mutually beneficial partnership. However, even seasoned entrepreneurs require additional insight to truly appreciate these unique terms and elements.
Most hotel franchise or license agreements use specific and extensive language to detail the terms that reflect the substantial investments made by both the Licensee (franchisee) and the Licensor (the brand). Accordingly, when it comes to franchise agreements, general documents may contain complex terms that require additional insight and explanation, such as:
- Ownership transfers;
- Royalty fees;
- Termination and renewals;
- Area of protection clauses;
- Capital investments; and
- Territory and exclusivity clauses.
A trusted lawyer with experience in hotel franchising can break down these nuanced terms to ensure you understand the potential risks and liabilities you may face in conjunction with Ontario’s laws in case of a future challenge.
Navigating Franchise Negotiations
Working with a large, multi-national hotel brand can be an exciting thought. However, while hotel franchise agreements may appear to be comprehensive, non-negotiable contracts, they are, in fact, often negotiable, at least to some degree.
Contract negotiations must be taken seriously, and franchisees are strongly encouraged to retain the assistance of an experienced lawyer to help them navigate the negotiation process. Thorough negotiations can make all the difference in ensuring you receive adequate protection and gain necessary concessions that work in your favour.
Understanding Ontario Franchise Law
Ontario’s franchise law, known as the Arthur Wishart Act (Franchise Disclosure), ensures franchise owners provide potential franchisees with crucial information about the franchise before the prospective entrepreneur enters into a franchise agreement. Therefore, a franchise owner must provide a “franchise disclosure document” containing “all material facts” relevant to the franchise relationship, including information about the franchise agreement, financial statements, and other information to help the prospective franchisee make important investment decisions. If a franchise disclosure document is not provided, or an incomplete or misleading document is provided instead, the franchise owner may face serious consequences, including fines or legal action.
Franchise owners are also obligated to advise the prospective franchisee about any “material change” that occurs after they provide the franchise disclosure document. Such a change could harm the franchise’s value or impact the franchisee’s decision to purchase the franchise. Further, if a franchisee suffers a loss due to the franchise owner’s failure to comply with any obligations under the Act, the franchisee may be entitled to bring legal action against them.
Key Takeaways for First-Time and Seasoned Hotel Franchisees
Regardless of your entrepreneurial background, entering into the hotel industry involves a significant investment of time, resources, and finances. Given the extensive investments and nuanced complexities involved, navigating the legal landscape alone can be overwhelming and may result in inadequate protection or liability exposure down the line. For these reasons, it is imperative that those looking to franchise a hotel obtain trusted legal guidance from a lawyer who can raise and explain essential considerations before you sign any contract. This knowledge, combined with an understanding of the applicable provincial and federal laws, will allow you to make informed decisions and maximize the potential for a successful business.
Contact the Corporate Lawyers at Baker & Company for Trusted Legal Advice on Hotel Franchising in Toronto and Across Ontario
At Baker & Company, our talented team of franchise lawyers takes the time to work closely with clients and understand their unique needs and goals. From proactive advice to dispute resolution, we can help ensure you are positioned for success in your new hotel business. Whether you are a seasoned franchisee or have recently considered entering into your first franchise agreement, contact us at 416-777-0100 or reach out to us online to schedule a consultation and learn how we can assist you.