Hotel Hospitality Law

Remodeling Requirements in the Lodging Industry

An issue which frequently arises in a franchisor/franchise relationship in the lodging industry is the issue of remodeling and renovations requirements.  Hotel franchise agreements typically permit the franchisor to require that the franchisee complete certain franchisor-identified improvements to the property by a specified date.  These improvements may be necessary because of normal wear and tear to the property, inadequate maintenance by the previous hotel owner or the effects of a natural disaster (i.e., hurricane).

This issue is a major source of contention among hotel franchisees because the franchisor usually retains complete discretion to the timing and extent of remodeling required by the franchisee to remodel and renovate the property.  The franchisor usually dictates how much the franchisee is to spend on the remodeling.  The old adage “it is easy to spend someone else’s money” rings true in this issue.  While some franchisors are willing to give the franchisee more time if requested, the decision whether to grant additional time is the franchisors, not the franchisees.  If the franchisor agrees to provide additional time to complete the remodeling, it is imperative that a franchise promptly obtain this promise, in writing, and preferably before the initial deadline has lapsed.  Otherwise, the franchisee typically is always at the mercy of the franchisor, and can lead to a termination of the franchise agreement. 

If a franchisee is put in this predicament by a franchisor with respect to making certain remodeling requirements within a specified amount of time, it is imperative that the franchisee do his/her best to make all reasonable renovations on schedule.  If the repairs cannot be made on a timely basis, whether that be because the repairs are excessive or not enough time is provided, a franchisee should always contact a franchise attorney to determine whether the reasons for the franchisee’s inability to timely make the repairs are justified. 

A franchisee can arguably be justified in not timely remodeling and renovating the property when a franchisor requires Hyatt Hotel quality renovations to be made to a Super 8 Motel.  In other instances, a franchisee may be justified in not making all of the renovations required by the franchisor because the rate of return on the investment (i.e., higher occupancy and higher rates may not be sufficient to repay the significant investment within a reasonable period of time).  For example, it is unreasonable to require a franchisee to expend one hundred thousand dollars ($100,000.00) in renovations when only two (2) years remain on the term of the franchise agreement, and only forty thousand dollars ($40,000.00) of additional gross revenues are expected to be generated by the new improvements.  In these instances, it is necessary for a franchisee to take the necessary steps to obtain a written waiver of the inappropriate and extensive remodeling requirements and/or obtain an appropriate extension of time.  If the franchisor does not put it in writing, it will in all likelihood be impossible for the franchisee to prove such promise as franchisors have a regular habit of conveniently forgetting about such promises.

Second, it is extremely crucial to obtain the franchisor’s written detailed description of the required renovations as well as written approval of the time permitted to complete the renovations and repairs.  In situations such as this, a franchisee also must be certain that the individual that the franchisee is dealing with has the proper authority to grant extensions of time and/or waive certain remodeling requirements.  This is especially important because there are instances where courts have held that it is not reasonable to rely on even the written promises of representatives of the franchisor where the representative did not have the authority to make binding promises on behalf of the franchisor. 

Last, it is important that the date as well as the particular renovations made to the property be well-documented to avoid any disputes with the franchisor as to which and when the repairs were made or whether they were properly made pursuant to the franchisor’s specifications.  Moreover, when dealing with your franchisor, especially with respect to remodeling requirements, it is crucial to keep a log documenting all the dates and contents of all communications.  Do not assume that just because the franchisor failed to remind you about a remodeling deadline will mean that the franchisor will not attempt to enforce the deadline or even attempt to terminate the franchise agreement.  All repair and renovation issues must be taken very seriously in order to preserve the substantial investment in the hotel.