Comfort Inn 2014 Annual Report Download - page 19

Table of Contents
Franchise Agreements
Our standard domestic franchise agreements grant franchisees the non-exclusive right to use certain of our trademarks and receive other benefits of our
franchise system to facilitate the operation of their franchised hotel at a specified location. Our standard domestic franchise agreements generally have terms
ranging between 10 and 20 years, with certain rights for each of the franchisor and franchisee to terminate their franchise agreement, such as upon designated
anniversaries of the agreement, before the 20th (or 10th, as applicable) year.
Generally, either party to our standard domestic franchise agreement can terminate the agreement prior to the conclusion of the agreement’s term under
certain circumstances, such as upon designated anniversaries of the agreement, subject to applicable law. Early termination options give us flexibility in
eliminating or re-branding properties for reasons other than contractual failure by the franchisee. This allows us the opportunity to strengthen our brand
portfolio in various markets by replacing weaker performing hotels. We also have the right to terminate a franchise agreement if a franchisee fails to bring the
property into compliance with contractual or quality standards within specified periods of time. The franchise agreements also typically contain liquidated
damages provisions which represent a fair measure of compensation that our franchisee and we agree should be paid to us upon a termination of the franchise
agreement.
When the responsibility for development is transferred to an international master franchisee, that party has the responsibility to develop and grow our
brands in the master franchise area. Additionally, the master franchisee generally must manage the delivery of certain necessary services (such as quality
assurance, reservations and marketing) to support the franchised hotels in the master franchise area. The master franchisee collects the fees paid by the local
franchisee and remits an agreed upon share to us. Master franchise agreements generally have a term of at least 10 years. We have only entered into master
franchise agreements with respect to franchised hotels outside the United States.
Franchise agreements are individually negotiated and vary among the different Choice brands and franchises, but generally are competitive with the
industry average within their market group. Franchise fees usually have three primary components: an initial, one-time affiliation fee; a royalty fee; and a
marketing and reservation system fee.
Our standard franchise fees are as follows:
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Cambria hotel & suites $500/$60,000
5.00%
4.00%
Comfort Inn $500/$50,000
5.65%
3.85%
Comfort Suites $500/$50,000
5.65%
3.85%
Quality Inn $300/$35,000
4.65%
3.85%
Ascend Hotel Collection $375/$30,000
4.00%
2.50%
Clarion $300/$40,000
4.25%
3.25%
Sleep Inn $300/$40,000
4.65%
3.85%
MainStay Suites $300/$30,000
5.00%
2.50%
Econo Lodge $250/$25,000
4.50%
3.50%
Rodeway Inn $125/$10,000
(1)
(2)
Suburban Extended Stay Hotel $225/$30,000
5.00%
2.50%
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(1) Royalty rate is $33.00 per room per month.
(2) Marketing and reservation system fees are $13.00 per room per month.
(3) Fees are based on a percentage of gross room revenue
As previously noted, the Company’s franchise agreements are individually negotiated and therefore actual fees may differ from those noted above.
From time to time, the Company may discount the standard royalty fees and/or marketing and reservation system fees in the initial years of the agreement as a
franchisee acquisition tactic. Typically, these discounts expire as the contract matures until the contractual fees reach the standard franchise fees in effect at
the time the agreement was executed.
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