Selling or buying real estate tends to adhere to a specific pattern. However, in the case of a franchised property, there is an entirely different set of regulations involved and finding a law firm with experience in property law is essential.
For any person who is thinking of buying franchised property, remember the following rules.
Define your purchase
Differentiate between acting like the owner and managing a leased property or being the owner of a brick-and-mortar structure. If you are the owner of a physical structure, you are more flexible. You are the owner of the land as well as property, instead of a shorter-period-lease.
If you are the landowner and wish to end your connection with your franchised brand, you have access to the facilities and can quickly get another brand which you desire. It makes you more appealing to the new brand since you are stable at your location.
Ensure all your financial papers are correct
The owner should ensure his financial statements are in order and make appropriate adjustments where necessary to increase the sale price. Financial statements that were previously audited might not be required.
But, an accountant should check all the papers which include detailed financial statements reflecting three years, the present YTD statements, STR reports (three years), all service contracts, condition reports, a duplicate of any environmental studies, etc. In some circumstances, the services of a lawyer may be essential to get everything organized.
Request the franchisor for a change-of-ownership improvement plan
It usually costs $5,000 to $7,000. To value a franchised hotel and market it correctly, you need to know the price of the PIP enhancements the purchaser will use in his investment strategy.
Understand the property’s present financial conditions
This includes the requirements of the hotel, its occupancy rates, and expense ratios. The location determines a lot. For instance, if the hotel is near an airport, a purchaser should consider the terms of any contracts present between the hotel and airlines for workers or any other related contracts. Evaluate the terms of agreements, their expiry date, and renewal date. This factor can significantly alter the dynamics of the deal and whether the hotel is going to retain its occupancies in their present area.
Learn the franchise agreement terms
A lot of franchisors need notification at the period when the property is presented for sale. Others have a right of initial refusal on the property. Liquidated damages might be involved if the buyer does not want to keep the existing franchise. Vendors and prospective buyers need to find out whether the franchisor possesses the right to buy the franchised business again.
A lot of franchise agreements give the franchisor an autonomous right to buy a franchise sometime in future for a specific cost. It might compel the franchisor to sell the franchise lower than its value. If the franchisor refuses to sell, usually the firm will want to meet and vet the prospective buyer to ensure that he/she is going to represent the brand appropriately.
Find out the management agreement terms
Usually, they are fixed for a particular term, mostly five to ten years. But, the agreements can be different, and they are not standard. Any early termination might include a fine, and the management firm might have the right to end the agreement quickly if the brand changes.