The Ontario hotel industry thrives on offering guests a comfortable, modern, and competitive experience. As the hospitality industry evolves, owners must maintain the property’s appeal and remain competitive. As such, it is important for hotels to adapt and innovate their offerings, which often necessitates renovations and upgrades. This is where Property Improvement Plans (PIPs) come into play. PIPs are crucial documents guiding hotel owners and franchisees through the strategic renewal of their properties.

This blog provides a high-level overview of Property Improvement Plans in Ontario hotel law. It outlines the common reasons for implementing a PIP, highlights crucial considerations during the planning and execution stage, and identifies practical steps to help hotel operators minimize disruptions throughout the PIP process.

What is a Property Improvement Plan (PIP)?

A PIP is a comprehensive plan outlining the scope and schedule of improvements required for a hotel property. Outside of regular maintenance and required inspections, a PIP is overseen by branded operators to improve the guest experience at a particular property. A PIP is generally developed by a franchisor and presented to the franchisee (hotel owner) for approval. Some key elements of a PIP include:

• Needs Assessment: This identifies areas of the hotel that require improvement, focusing on guest experience, brand standards compliance, accessibility (Accessibility for Ontarians with Disabilities Act) and potential safety hazards.
• Renovation Scope: The plan details the required renovations, including timelines, materials, and estimated costs.
• Financial Considerations: Anticipated costs associated with the renovations will be outlined, including construction, materials, and potential revenue disruptions during the renovation process.
• Implementation Schedule: The PIP will set out a timeline for completing the renovations which is aimed at minimal disruption to hotel operations and guest experience.

When is a Property Improvement Plan Necessary?

Several factors contribute to the need for PIPs in Ontario’s hotel industry, such as:

• Maintaining Brand Standards: Franchisors have a vested interest in ensuring their brand’s reputation for quality and consistency, thus, PIPs are a tool to ensure franchisee hotels meet these brand standards across all locations.
• Guest Expectations: PIPs help hotel properties stay competitive by providing modern, trending amenities to enhance the guest experience.
• Safety Upgrades: As building codes and safety regulations change, PIPs can identify necessary upgrades to fire safety systems, accessibility features, and other safety protocols.

Property Improvement Plans are typically required at various stages throughout a hotel’s life cycle, as certain amenities and items such as decor, bathrooms, and carpeting all have a defined lifespan and require regular attention. As such, there are key times that a PIP may be necessary, including:

• Change of ownership;
• Relicensing; and
• Standard regular cycle intervals.

Key Legal Considerations for Ontario Hotel Owners and Franchisees

While PIPs offer numerous benefits, navigating them requires a thorough understanding of the legal landscape in Ontario. The franchise agreement terms between the hotel owner and franchisor often dictate the PIP process. This agreement outlines the responsibility for renovations, timelines, and potentially, financial contributions from the franchisor. In some cases, the franchisee may be required to set aside a certain percentage of annual revenue in order to fund these improvements. However, this may be a substantial amount of money, depending on the size of the hotel, which can be a significant financial liability.

Franchisors are legally obligated to disclose all material information about the PIP, including estimated costs and potential impacts on the hotel’s business while the PIP is being executed. As such, hotel operators should be aware of the unique pressures they may face during this time, such as keeping the property in pristine condition while perpetually in use. It is also crucial to ensure that any renovations being undertaken are compliant with all applicable building codes, zoning regulations, accessibility standards and other legislative requirements in Ontario.

How Hotel Owners and Franchisees Can Mitigate Risk During the PIP Process

Managing the PIP process effectively minimizes risks and ensures a successful renovation experience. Some best practices for Ontario hotel owners and franchisees include:

• Consulting with an experienced hotel lawyer throughout the process, who can provide guidance on interpreting the franchise agreement, negotiating the terms of the PIP, and can ensure legal compliance throughout the process.
• Maintaining open communication with the franchisor throughout the PIP process and promptly discussing any concerns or issues and clarifying expectations when needed.
• Being proactive planning for the PIP well in advance of its implementation, as this allows for careful attention to budgeting, securing financing, and minimizing disruption to daily hotel operations.

Final Thoughts on Hotel Property Improvement Plans

Property Improvement Plans are essential to maintaining a successful hotel in Ontario’s competitive hospitality market. By understanding the purpose of PIPs and the legal complexities that can arise, hotel owners and franchisees can navigate the renovation process effectively with minimal disruptions. With careful planning, clear communication, and sound legal guidance, PIPs can be a catalyst for a transformed property, enhanced guest experience, and a thriving hotel business.

Contact the Hotel Lawyers at Baker & Company in Toronto for Advice on Property Improvement Plans

At Baker & Company, our talented team of corporate and hotel lawyers take the time to understand your situation and identify tailored legal solutions to address your needs. Whether you require assistance with a hotel purchase, have questions about your franchise agreement, or are seeking legal guidance in relation to a Property Improvement Plan, we can help. To speak with a member of our team regarding your hotel matter, call us at 416-777-0100 or reach out to us online.