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The Evolving Shift in Power Between Hotel Franchisor and Franchisee

A coalition of franchisees has recently been pushing for legislative action to balance the power dynamic between hotel franchisors and franchisees. One of the latest endeavors involves a New Jersey-based group advocating for a bill to establish specific safeguards for hotel franchisees, which is currently pending.

New Jersey Legislature Proposes Big Changes

Assembly Bill No. 1958, along with corresponding Senate Bill 3165, aims to mandate that hotel franchisees in New Jersey receive additional benefits and protections that are typically absent from standard franchise agreements. The proposed bill would prohibit franchisors from:

  • receiving rebates from franchisor-mandated vendors, unless such rebates are disclosed and passed through to the franchisee;
  • requiring franchisees to purchase goods, services, or supplies from the franchisor or franchisor-selected vendors, when comparable items are available from other sources;
  • unilaterally changing material terms of a franchise agreement;
  • imposing fees or charges not disclosed in an FDD or franchise agreement; and
  • selling loyalty points for a profit without providing reasonable compensation to franchisees.

In effect, the law would reconfigure the relationship between owners and franchisors.

The Asian American Hotel Owners Association has publicly spoken out in support of Assembly Bill No. 1985, specifically the AAHOA:

  • will not object to vendor exclusivity so long as the vendor provides these mandated products and services to Franchisees for competitive pricing.
  • will not support the selling of loyalty points by a brand partner or franchiser for a profit.
  • will not support franchise fees being added that were not previously disclosed in the franchise disclosure document without prior approval.
  • supports the preference of certified women-owned, minority-owned and veteran-owned businesses to serve as the mandated and preferred vendors for the franchise business model.

Why it Matters

There has been a consistent push for legislative change in the hospitality industry regarding the franchisor-franchisee relationship in recent years. If Assembly Bill No. 1958 passes, it would significantly alter the current and future dynamics between franchisors and franchisees. As more states propose their own legislation, franchisee clients will need to stay informed about their evolving rights and ownership status.

This bill creates provisions regarding hospitality franchises in the State of New Jersey, supplementing P.L.1971, c.356, the “Franchise Practices Act” (C.56:10-1 et seq.). These provisions apply to hospitality franchises where the franchisee is required to maintain a place of business within the State, or where the franchise owner, partner, member, investor, or guarantor is a resident of New Jersey and where over 20 percent of the franchisee’s gross sales are derived from their New Jersey franchise. The bill also ensures that franchises, as defined in 16 CFR 436 and 437, if they are hospitality franchises, will be considered “merchandise” under the consumer fraud act, P.L.1960, c.39 (C.56:8-1 et seq.).


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