2015 Franchise Disclosure Document Updates
As we finalize our annual Franchise Disclosure Documents (FDDs), we want to inform you of some important updates to the structure of our Franchise Agreements (FAs). We would also like to share details regarding changes to the royalty fees and application fees (relicensing and new development) for a number of our brands, as well as the marketing fund contribution for TownePlace Suites. In addition, we are implementing a new Food & Beverage Sustainment fee for our SS/ES brands and a new Brand Standard Audit charge.
NEW FORM OF FRANCHISE AGREEMENT
We have reviewed and revised our FAs and related documents to make them shorter and simpler, with the goal of creating a form that aligns the contract with current business practices while protecting the integrity of Marriott’s franchise system. The new forms will be used for all new development and relicensing deals beginning March 31, 2015.
A Key Terms Exhibit within the new form contains all of the specific deal terms (names, addresses, fees, restricted territory, dates and deadlines, etc.). We have simplified many provisions, with key changes that should allow for a more streamlined review for franchisees going forward.
While it may take you and your adviser more time to review your first deal using the new form, subsequent reviews should be simplified given the reduced size. Additionally, all deal-specific terms will be in a single exhibit which will further increase clarity.
CHANGES TO FEE STRUCTURE
Given the strong position of our brands in the competitive landscape, and the owner premiums they provide, we have reviewed our franchise fees and will be making the changes outlined below.
Royalty Fee Increases for Courtyard, Fairfield Inn/Fairfield Inn and Suites and SpringHill Suites
Royalty fees for these brands will continue under 2014/15 rates for any application that is received before Oct. 1, 2015, with the FA executed by Dec. 31, 2015. For all other FAs, the royalty fees will increase by 0.5% of gross room sales for all new developments, relicensings, or transfers of existing hotels. Existing agreements are not impacted by this change.
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Fairfield Inn & Suites, SpringHill Suites and TownePlace Suites will continue to offer a development incentive for new applications. Effective March 31, 2015, for any signed FA for any of these brands, a franchisee will pay a 2% royalty fee in Year 1, 4% in Year 2 and current royalty fee at time of signing from Year 3 to the end of the term.
Marketing Fund Contribution for TownePlace Suites
Effective Jan. 1, 2016, 2% of gross room sales will be charged for the TownePlace Suites Marketing Fund. This applies to new and existing franchise and management agreements.
Relicensing Application Fees for All Brands
Effective March 31, 2015, the Relicensing Application Fees for our brands will be as follows:
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For transactions that have not yet closed but for which we have received completed applications (including payment of the application fee), we will honor the previously agreed-upon relicensing application fees. For transactions for which we have previously received a request for an application but have not received the completed application, we will charge the 2014 application fees provided that we receive the completed application (including payment of the application fee) within sixty (60) days of our sending the 2015 FDD. For all other transactions, the fees set forth above will apply.
Development Application Fee for Autograph Collection
Effective March 31, 2015, the new development application fee for Autograph Collection will be the greater of $75,000 or $300 per guest room.
BRAND STANDARD AUDIT CHARGE AND FOOD & BEVERAGE SUSTAINMENT FEE FOR NEW DEVELOPMENT DEALS AND RELICENSINGS
Brand Standard Audit (BSA) Charge – Effective March 31, 2015 for New Development Deals and Relicensings
Effective March 31, 2015, a new per-hotel “Brand Standard Audit Charge” will be implemented to defray the ongoing cost of Marriott’s Quality Assurance (QA) program. The per-hotel cost will range from approximately $1,300-1,500 per audit except for JW Marriott Hotels, which will have a range of $1,300-3,000 per audit, and Autograph Collection Hotels, at $2,100 per audit. These charges are aligned with how other brands fund their QA programs (i.e., program fee or direct funding) and create a more sustainable program for Marriott in terms of a funding model across our brands. We will continue to seek opportunities to maintain a competitive audit cost through program changes and innovation.
Food & Beverage (F&B) Sustainment Fee for SS/ES Brands – Effective March 31, 2015 for New Development Deals and Relicensings
The SS/ES brand F&B programs must go through a continual refresh and evolution to keep current with the rapidly-changing F&B space.
Effective March 31, 2015, an F&B Sustainment Fee will be implemented to support our strategy for innovation, ensure strong competitive positioning, and provide training for system-wide operational execution. This fee will fund a dedicated team responsible for developing and delivering a cadence of regular program updates.
For brands with breakfast-only operations (Fairfield Inn/Fairfield Inn & Suites and TownePlace Suites), the charge will be $400 per year; for brands that also have an evening program (Moxy, Residence Inn and SpringHill Suites), the charge will be $800 per year. AC Hotels and Courtyard will pay $1,200 per year for their more complex paid breakfast and evening programs.
Click here to see a schedule of the BSA charges and F&B fees. These will be effective for FAs signed after March 31, 2015. Existing agreements are not impacted by this change.
We remain committed to protecting your investments while continuing to improve each brand’s economic business model. As you know, these brands are leaders in their respective segments and provide strong returns. Thank you for your support and for helping us enhance their strength in the marketplace as well as their value proposition to you.