O8A.ORG
DISCLAIMER: The opinions and comments of individual franchisees expressed herein are solely the opinions of those individual franchisees and do not necessarily state or reflect the opinions of the Owners 8 Association or its attorneys. The information in this website is the sole property of the Owners 8 Association and any duplication or reprint cannot be made without the express written consent of Owners 8 Association. Date: To: AAHOA Board of Directors From: Jay Patel – Owners 8 Association About 8 weeks ago now, I began to work on forming an association of Super 8 Motel owners. This work was begun by Mr. Jim Sweeney, a Super 8 owner from We currently have grown to represent approximately 551 Super 8 locations throughout the Many of the members of the Owners 8 Association are also members of AAHOA; it is their opinion that I bring this issue before you again. Previously, when I spoke with your representatives, I was a lone and single voice, today things have changed. 80% of the members registered with Owners 8 Association are Asian Americans. Many of them are also members of AAHOA and now they want me to discuss your position with them. Many of our concerns regarding Super 8 and Wyndham are the same concerns that effect owners of other Wyndham brands. Brands such as Days Inn, Ramada, HOJO, Travelodge, Knights Inn, Amerihost, etc. have owners with similar issues to ours. A majority of these owners are also Asian Americans and also members of AAHOA. The impact of our group will be felt throughout the Asian American hotel community. Unlike, many of the past AAHOA hierarchy, I have decided to try to make a difference within our Asian community. I have become tired as have many of the other Asian Americans of the injustices and unfair trade practices of the major lodging franchisors. In this case, I am specifically discussing Wyndham as our group is an association of Super 8 Motel owners. However, our association is open to general membership which could be anyone interested in the success of our group. Our issues with the franchisor have become compounded within the last 2 years. As an Asian American Hotel Owner, it has become more and more difficult for us to run a profitable operation. A majority of our issues are the direct result of unfair practices by Wyndham and their total disregard for the profitability of owners. We are increasingly being forced to make unnecessary upgrades and endure unconscionable expenses that primarily benefit the franchisor. Implementation of Softhotel ($15,000-18,000), unreasonable fees for triprewards, customer issues, inspection issues, etc., unreasonable franchise agreements, and inconsistent QA guidelines are just some of the basic issues that not only effect Super 8 owners but all Wyndham properties. As you know, Asian Americans are the backbone of Wyndham; we represent the largest ownership base within Wyndham Worldwide. Asian Americans rely on the lodging industry as a major source of revenue. As you have indicated in some of AAHOA’s publication, we have a vested interest in the success of the lodging industry today. However, Wyndham Hotel Group has become more of an investment company rather than a Hotel Operations Company. The result is that Asian Americans and other Wyndham franchisees have seen deterioration in profitability. In many cases the franchisor is leading to the demise of the franchisees and the demise of the smaller Asian American Hotel Owner. Now that I have further made my point, I would like for your board, to officially notify our association of your position in regards to our owners association. Once, I receive AAHOA’s position I will forward the information to our owners. Please respond to my letter as I feel that AAHOA must also make a stand and let all of its members know their true position. Please do not contact Wyndham and act as a mediator between the Franchisor and our group as we already are pursuing that aspect on our own. My goal is to officially be able to discuss your association’s position in regards to owners group. Thank You Jay Patel Mr. Jay Patel Dear Jay, Thank you for participating in the conference call with us on Specifically, to the extent you want AAHOA’s help, we can highlight the incorporation of the O8 Association to our membership, so they are aware that you have formed the new organization and can opt to join if they decide to do so. We can help plan and facilitate a variety of meetings, such as a Super 8 Brand Meeting, and invite you and/or your designated O8 Association representatives to speak and answer questions about your association, and the issues on which you are working. If you want AAHOA’s advice on issues involving fair franchising, or would like us to assist the leaders of your new O8 Association in scheduling meetings with Wyndham, we are happy to discuss such matters with you and/or your designated legal counsel. We can also serve as a strong advocate on issues of concern to Super 8 franchisees, which may well impact all franchisees across many different hotel brands. For your information, without going into great detail, AAHOA has met with key executives from each of the leading franchise companies, including Wyndham, over the last 18 month to discuss fair franchising issues affecting all AAHOA members. We have learned many things as a result of these meetings, and are available to share some of the information we have gathered from these meetings if this is of interest to you. As indicated above, while AAHOA can do many things to support the new O8 Association, unfortunately, AAHOA cannot financially assist the O8 Association or pay its legal bills to engage the services of franchise attorney Michael Dady and his law firm of Dady & Garner. If AAHOA were to do so, this could possibly jeopardize AAHOA’s status as a 501(c)(6) corporation, and create potential and/or actual conflicts of interest. For example, if AAHOA agreed to financially support the O8 Association, it is arguable that AAHOA would then need to provide some form of financial assistance to other FACs or member associations to the same degree, in order to ensure AAHOA was not doing anything that would inure to the benefit of one member or group of members, to the detriment of the rest. It is possible that our 501(c)(6) status could be at risk if we chose this path. While AAHOA cannot offer any financial support due to its 501(c)(6) status, as indicated above, however, AAHOA is willing to support the Association in many other tangible and productive ways, and we look forward to any opportunity to work closely with you in the future. Thank you for your continued support of AAHOA. If you have any questions concerning the foregoing, please do not hesitate to contact
Sincerely,
We are communicating with AAHOA and seeking their help and expertise. We continue to work towards a solution to O8A concerns.
Re: AAHOA’s Position regarding the association
Owners 8 Association
AAHOA'S RESPONSE TO OUR LETTER. Asian American Hotel Owners Association
Building #7
Atlanta,
Owners 8 Association
Super 8
Re: AAHOA’s Support For The New Owners 8 Association
Chairman Vice Chairman President
AAHOA Office of General Counsel
OUR RESPONSE TO AAHOA
Date: 12/19/07
TO: AAHOA - Fred Schwarz
From: O8A
RE: Your Support
Thank you for your response regarding our association. The response has been posted on our website for all our members to review. We welcome your support as we feel that your support will be beneficial to our organisation. Also, we feel that you have taken a significant positive step towards helping AAHOA members. Our association comprises many AAHOA members and therefore they will greatly appreciate your assistance of our association. Further, our issues are broader issues and are significant to all Wyndham owners.
A copy of our press release will be sent to you in order for you to send it out to AAHOA members. This will help O8A expand is presence and allow your members to become familiar with our organization. I would like to list AAHOA as a general member of our O8A, as a general member the group has no financial obligations to our association. Essentially, a general member is interested in the success of our group as we work towards meaningful discussions with Wyndham.
You had pointed out that you were in discussions with many franchisors, and our members would definately be interested in your findings. It has been several years since fair franchising was introduced by past chairman Mike Patel, however we have not seen much improvement in franchise agreements from Wyndham or Choice. In fact in the last few years, we have seen franchisors create franchise agreements that cover short periods. For example, IHG has current franchise agreements that only last for 10 years, however, the typical mortgage runs 20-25 years. This can create hardships for hotel owners. In the case of Wydham / Super 8 this is not an issue however, transfer fees, renewals, excessive punchlists during sales, etc are significant issues. In our initial communication to Wyndham, we have addressed this issues as they are quite significant to Super 8 / Wyndham owners.
Again, thank you for your response and support. Owners 8 Association will strive to help its members succeed and further help AAHOA members succeed. Our organization has moved forward in leaps as we are only 2 months old at this point. Our association has sent in the intital retainer to Dady and Garner in order to begin communication with Wyndham. If they feel that they would like to receive any information from your organisation, then I will attempt to contact you on our behalf.
Thank You,
Owners 8 Association
STANLEY TURKEL ARTICLE REGARDING THE AAHOA PROGRESS REPORT
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The article below was written by Stan Turkel and will give you some further insight into Fair Franchising Compliance by Wyndham.
The article is listed in its entirety at the following link http://www.hotelinteractive.com/
AAHOA 2008 Progress Report on Wyndham Hotel Group 'Fair Franchising' Compliance Columnist Stan Turkel evaluates how AAHOAs 12 Points of Fair Franchising are lining up with policies of a Wyndham Hotel Group. Thursday, August 07, 2008
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Why is this important? Since AAHOA members own approximately 13,500 franchised hotels and have long-term franchise agreements with their franchisors, fair franchising is an essential factor in achieving profitable operations.
In preparing its PARs, AAHOA utilized the Uniform Franchise Offering Circulars (UFOCs), actual franchise agreements and related business policies and procedures.
Following the preparation of draft versions of the Performance Appraisal Report, AAHOA provided each franchisor with a copy of the report and an opportunity to comment on it. The comments received by AAHOA were considered and, if pertinent, were integrated into the Performance Appraisal Report.
This long-awaited (and some would say long-overdue) report enables franchisees to better understand the provisions of the franchise agreements so that they can make informed decisions before signing a franchise agreement and committing to a long-term franchise relationship.
Here is a summary of the performance appraisal of the Wyndham Hotel Group as compared to AAHOAs 12 Points:
Point 1: Early Termination and Liquidated Damages
1(a) Most franchisors assess liquidated damages at unfair and punitive rates, often 36 to 60 months of royalty fees. AAHOA states that franchisees should only have to pay six months of royalty fees.
WYNDHAM POSITION:
In its franchise agreements for eight (8) out of the nine (9) hotel brands, Wyndham includes different provisions concerning the amount of LDs that must be paid in the event of an early termination, which generally amount to $2,000 per guest room, or 24 months of fees. In response to the PAR, Wyndham informed AAHOA that it negotiates the LDs on a case-by-case basis, and sometimes reduces the amount of LDs owed by a Franchisee if circumstances warrant.
In response to the PAR, Wyndham asserted that if the LDs operated as a penalty, they would not be upheld in court. Based on Wyndham’s experiences, courts frequently uphold the LDs provision because the amount of liquidated damages covers Wyndham’s legitimate cost of doing business because, among other things, there is substantial cost to Wyndham to replace a hotel property in the event of an early termination. With respect to negotiating the terms of their franchise agreements, members should be aware that in recent months, several Franchisees have reported to AAHOA that Wyndham agreed to revise the standard franchise agreement language and reduce the LDs to the lesser of 12 months of average monthly fees and/or $1,000 per room.
1(b) Windows Provisions - Most franchise agreements contain “window” or additional termination right provisions which allow the parties to terminate the agreement on specific anniversary dates (e.g., on the fifth, tenth or fifteenth anniversary) without having to pay liquidated damages. Unfortunately, many franchisors have included “gotcha” clauses in their franchise agreements which prevent early termination if the franchisee encountered monetary or operational problems at any time after the opening of the facility.
WYNDHAM POSITION:
Wyndham announced that for its 2008 UFOC, Wyndham will be adding mutual windows provisions to all of its franchise agreements. These mutual provisions will allow either Wyndham or its respective Franchisees to exit on the fifth, tenth or fifteenth anniversary dates of the subject Facility’s opening date, without penalty.
1(c) Underperforming Properties
WYNDHAM POSITION:
Wyndham has a Franchise Relations Policy (“FRP”) that allows Franchisees to exit if they have less than 50% occupancy rates, but applies stringent conditions to the exercise of this provision. Following its review of the detailed comments contained in the initial draft of the PAR, Wyndham agreed to evaluate several of these conditions, and possibly revise or eliminate them in the interest of fair franchising.
Point 2. Impact/Encroachment/Cross Brand Protection
All franchisors should grant each of their franchisees (over the term of the agreement) contractual rights to a geographic “area of protection” (AOP) in which the franchisor will not allow another property to operate with the same or similar brand name as the franchisee’s hotel.
WYNDHAM POSITION:
Wyndham grants a “protected territory” to its Franchisees for certain hotel brands, but does not allow them to request an impact study if the applicant hotel is outside of the protected territory and does not grant cross-brand protection.
In response to the initial draft of the PAR, Wyndham reported that it had very few issues or complaints from Franchisees concerning their protected territories, or that Wyndham was encroaching on their territorial rights. In fact, the opposite was often true, with applicants seeking an opportunity to build a Wyndham brand name hotel, and then complaining when they could not do so because of the territorial protection offered by Wyndham to an existing Franchisee. Wyndham further commented that it had conducted impact studies in the past, but they were very subjective and did not provide much, if any, protection. Finally, Wyndham stated that by offering exclusive protective territories to its Franchisees, and now affording them an opportunity to exit the system without penalty under the new five-, ten- and fifteen-year windows provisions that will be implemented into all Wyndham franchise agreements in 2008, Wyndham is offering reasonable terms to its Franchisees and allowing them to terminate early if they are unhappy.
Point 3. Minimum Performance & Quality Guarantees
If a franchisee’s hotel is not able to maintain certain occupancy levels over a designated period and has not received a minimum level of reservations, franchisee should be able to terminate the agreement without penalty.
WYNDHAM POSITION:
In response to the initial draft of the PAR, Wyndham stated that it has no control over how a hotel is operated, or whether it is receiving adequate reservation system contributions. Wyndham further commented that, as indicated above, it publicly discloses its reservation system contributions for the various hotel brands in the UFOCs. However, Wyndham allows the Franchisees to exit the system without penalty pursuant to certain conditions if their occupancy rates are less than 50%.
Point 4. QA Inspections/ Guest Surveys
WYNDHAM POSITION:
Wyndham uses an independent company, Medalia, to conduct its QA inspections, and the most important aspect of the QA score is the guest surveys. Further, for any re-inspection of a hotel following a poor QA score, Wyndham only issues a score for items which were identified in the prior inspection. Wyndham also promotes the use of self-evaluation forms that Franchisees can use to conduct their own QA inspections for training and educational purposes. Finally, Wyndham has an electronically activated appeal process, which allows the Franchisees to request “grade reconsiderations” based on the overall brand standards for the hotel, and “time extensions” if they need additional time to complete the punch list of items on the QA report.
Further, as explained in a letter dated January 7, 2008 from John Valletta, President of Super 8, to all Super 8 owners and operators, the guest complaint resolution policy for Super 8 owners is very generous. On another positive note, Wyndham offers options if a facility is terminated for taking its QA inspections. For example, in its UFOCs for the Days Inn and Travelodge brand hotels, Wyndham includes a footnote 5 under the section entitled “Renewal, Termination. Transfer and Dispute Resolution,” which states, “If termination is due to your failure to maintain adequate quality assurance scores, we may, in our sole discretion, offer to reduce or eliminate your liquidated damages and fees if you convert the Facility to operate under a license from one of the lodging Affiliates,” (See, e.g., 2006 UFOC for Days Inn, p. 69, ln. 5, and for Travelodge, p. 51, ln. 4.)
Point 5. Vendor Exclusivity
WYNDHAM POSITION:
For those mandatory items that the Franchisees can only purchase from Wyndham, Wyndham does not make a profit and only charges an administration fee. Wyndham also allows its Franchisees to seek approval for a supplier that is not on the preferred list and does not charge a fee for such services.
However, Wyndham reports that this option is seldom used by its Franchisees because they receive discounted prices from Wyndham’s suppliers. Wyndham further indicated that it has very few products and services that must be purchased from mandated vendors, and it usually provides a list of several vendors from which to choose. For example, for the mandatory signs, computer systems and software, Wyndham provides a list of three vendors from which Franchisees can purchase the products. Finally, in its UFOCs, Wyndham states that it contributes a portion of the commissions from the mandated vendors to the marketing funds.
Point 6. Disclosure and Accountability
WYNDHAM POSITION.
Although, in its UFOCs, Wyndham discloses that it uses a large percentage of its marketing funds for “other expenses” and “administration,” Wyndham does not provide its Franchise Advisory Councils (“FAC”) with audited financial statements concerning the expenditure of marketing and reservation fees. Following the review of the PAR, Wyndham stated that the concept of advertising and marketing has changed in recent years, and there is now an enormous amount of alternative entertainment, known as “advertisement”, that is used to reach target audiences. Consequently the traditional expenditure of money on television and print advertisements has now expanded to include activities and personnel that are not generally associated with marketing campaigns.
Point 7. Maintaining Relationships with Franchisees
WYNDHAM POSITION:
Wyndham believe this Point No. 7 concerning maintaining relationships with its Franchisees to be one of its strengths. Specifically, Wyndham reported that it is one of the first companies to appoint Directors of Business Development (“DBD”), who are responsible for working with the individual hotels to improve their business opportunities and address any issues or concerns they might have. Wyndham is also in the process of hiring a new Senior Vice President of Owner Relations, who will be dedicated to working with the Franchisees and will be part of the Senior Leadership Team. Further, Wyndham reported that almost all of its FACs have elected members. Some of the FACs (i.e., Howard Johnsons) have 100% of their members elected by the Franchisees. Five (5) of the FACs have members that are both elected and appointed. Three (3) of the FACs have only appointed members. Wyndham indicated that all of its FAC members are independent and outspoken, and that Wyndham seeks their counsel and advice on many issues. On a related point, AAHOA is pleased to report that in 2007 and early 2008, Wyndham has been much more responsive to the individual concerns of AAHOA’s members. Among other things, Wyndham has a variety of members’ disputes and has participated in meetings with AAHOA leaders to address issues involving various hotel brands and complaints from AAHOA member franchisees.
Point 8. Dispute Resolution
WYNDHAM POSITION:
Following Wyndham’s review of the PAR, it announced that it would work closely with AAHOA to improve its handling of Franchisee disputes, and was in the process of hiring a Senior Vice President of Owners Relations, in the latter half of 2007. AAHOA noticed a marked improvement in how quickly Wyndham responded to Franchisee issues, and its willingness to engage in informal discussions and meetings with the individual Franchisees. On another positive note, AAHOA is very pleased to report that on several occasions in 2006-08, when there were major issues involving the Baymont, AmeriHost and Super 8 Franchisees, respectively, the top executives of Wyndham - including Chairman and CEO Steve Rudnitsky, COO Tony Berger, Group President of Super 8 John Valletta, and Hotel Group Counsel Sarah Woodfin Wynn - personally attended meetings with AAHOA in an attempt to resolve disputes and maintain a good working relationship.
With respect to the resolution of Franchisee disputes, Wyndham allows its Franchisees to proceed to litigation and does not mandate that they go to arbitration. However, Wyndham does require its Franchisees to waive their rights to a jury trail in any action involving their franchise agreements, or the relationship between the Franchisees and Wyndham itself. (See, e.g., 2006 Days Inn franchise agreement, Section 17.6.4, pg. 20.). While jury waivers are more likely to be enforced when combined with provisions authorizing mediation of disputes, an increasing number of courts have held that jury waiver provisions are unenforceable. For example, state courts in California, Georgia, Virginia and Tennessee have issued opinions that have either found such provisions to be unenforceable under state laws or have questioned their enforceability.
Point 9. Venue and Choice of Law Clauses
WYNDHAM POSITION:
Wyndham states that any claim or controversy will be subject to “non-exclusive” personal jurisdiction in Morris County, New Jersey, and that New Jersey law will apply. This means that if there is a dispute and Wyndham is the first party to go to court and file a lawsuit against a Franchisee, Wyndham can file the suit in New Jersey, near its corporate headquarters, and the Franchisee cannot object to jurisdiction in this location. If a Franchisee is the first to file a lawsuit against Wyndham, however, the Franchisee has the right to file the claims in an appropriate county and state, which might include the county and state in which the hotel is located, and the Franchisee is not limited to filing only in Morris County, New Jersey.
Point 10. Franchise Sales Ethics and Practices
WYNDHAM POSITION:
Following review of the PAR, Wyndham stated the following:
(1) Since Wyndham is a publicly traded company that is subject to the Sarbanes-Oxley Act (“SOX”), each quarter Wyndham senior management is required to certify for SOX purposes that they are not aware of any fraud, including sales fraud, in the organization.
(2) Wyndham’s legal department conducts training sessions for the sales force twice a year on the legal requirements of selling franchisees, to ensure that they conduct themselves in a legal and ethical manner.
(3) Wyndham’s corporate compliance and ethics officer trains the sales force on the Wyndham “Business Principles”, which is Wyndham’s code of conduct for employees representing its core business philosophy of acting with integrity and respect for others. The Business Principles state, in pertinent part, “Employees should deal properly and legally with Wyndham Worldwide customers, suppliers, competitors and employees. You should not engage in manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice.” Each employee is required to sign a form acknowledging that they have read and agree to uphold these principles.
(4) Wyndham requires all Franchisees to review and initial a special Section 18 in their respective franchise agreements entitled “Special Stipulators,” describing all the stipulations or agreements reached by the parties as the result of their arms’ length negotiations, which may include provisions regarding special signage credits, reduced liquidated damages, additional termination rights or window provisions, and/or reduced re-licensing fees.
(5) Finally, on August 7, 2007, Steven A. Rudnitsky, President & Chief Executive Officer of Wyndham, stated as follows: “As the leader of this organization I am here to tell you that the (above) noted principles and processes that this organization lives by its non-negotiable.”
Point 11. Transferability
WYNDHAM POSITION:
Although Wyndham’s transfer fees are excessive, special consideration is given for transfers to family members or business partners. Specifically, the transferee must complete and submit an application, qualify as a Franchisee, provide the same supporting documents as a new license application, and pay the application and re-license fees, then in effect, sign the conversion transaction franchise agreement form, agree to renovate the Facility as if it were an existing Facility converting to the System, and satisfy other conditions identified by Wyndham. (See, e.g., 2006 franchise agreement for Days Inn brands, para.9.3, p.12). On a positive note, Wyndham authorizes “Permitted Transferee Transactions” of an equity interest to, among others, (a) an entity or person upon the death of the owner if no consideration is paid, or (b) a spouse or adult issue of the transferor if no consideration or payment is made. For such transactions, the Franchisee may transfer the Facility without obtaining Wyndham’s consent, renovating the facility, or paying a re-license or application fee, but certain other restrictions apply. (See, id.. at para. 9.4, pp. 12-13).
Point 12. Sale of the Franchise System Hotel Brand
The new franchisor should maintain the same or higher level of quality as the prior franchisor owners and offer assurances that the transition is as smooth as possible.
WYNDHAM POSITION:
In its UFOC and license agreements, Wyndham provides that it can sell the franchise system to any person or legal entity, and that it does not offer any assurances that it will attempt to work with the new Franchisor owner to ensure the transition is as smooth as possible, or to protect the rights of its Franchisees.
