Hotel Management Agreements

Baker & Mckenzie's View - What is the Importance of Brand Standards?

For a brand to have meaning in any useful sense there must be a collection of clear and concise standards which ensure that each user of the brand has the responsibility to deliver a consistent and uniform guest experience.

Baker & McKenzie

For a brand to have meaning in any useful sense there must be a collection of clear and concise standards which ensure that each user of the brand has the responsibility to deliver a consistent and uniform guest experience.

The great hotel operating companies of the world whether they are international or entirely local, or whether they have one brand or a suite of brands, fundamentally depend on their owners and franchisees to adhere to brand standards. Typically the brand standards are most comprehensively codified with respect to five (5) star brands as these generally are the most treasured gems in the operator's stable of brands.

For both managed and franchised hotels, operators take various approaches to brand standard compliance. Some operators mandate brand standard audits and if not complied with on one or more occasions then adverse consequences may be imposed upon the recalcitrant owner with the ultimate sanction being termination of the management or franchise arrangement, removal of the brand and the potential of a claim for significant damages against the owner for breach of contract.

For hotels under management agreements, compliance with brand standards at all times is achieved through the daily management leadership of the general manager and other senior personnel appointed to the hotel by the operator. In practice, however, operators adopt a common sense approach to compliance particularly with respect to matters such as upgrade requirements pertaining to technology in advance of the expiration of the life cycle / tax written down value of existing technology in the hotel. To take but one example in the technology landscape, mandated requirements to comply with state of the art plasma screen / LCD television receivers are tempered by a recognition that this should only be insisted upon when the life cycle / tax depreciation expiry date of existing television receivers is reached.

Brand standards are the essence of the symbiotic relationship between all owners and franchisees who are authorised to use the brand and the operating company who is the brand owner. Each owner/franchisee looks to the operating company to mandate brand standard compliance across the chain of hotels using the same brand and to take decisive action with respect to instances of non-compliance. The operating company relies on each owner/franchisee to comply with its contractual obligations to comply with brand standards and spend the necessary funds to ensure that this takes place.

As with all the previous articles in this series, we would be happy to elaborate to any interested reader any aspect of this topic and the key negotiation considerations relating thereto.

About Baker & McKenzie

Founded in 1949, Baker & McKenzie advises many of the world’s most dynamic and successful business organizations through more than 11,000 people in 77 offices in 47 countries. The Firm is known for its global perspective, deep understanding of the local language and culture of business, uncompromising commitment to excellence, and world-class fluency in its client service. Global revenues for the fiscal year ended 30 June 2014, were US$2.54 billion. Eduardo Leite is Chairman of the Executive Committee. (www.bakermckenzie.com)



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