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Neva Wagner
hotel ’ s brand will not introduce a competing hotel within the specified area . However , AOPs can fall short of achieving this goal for several reasons : � Traditionally , AOPs are limited to the subject hotel ’ s specific brand , geographic area and duration . While an AOP ’ s geographic area and duration have been negotiable , companies rarely entertain AOPs beyond the subject hotel ’ s brand . This offers owners no protection against the company ’ s newly created brands , even when those brands are in the same brand category as the subject hotel and target similar market segments and price points . � Companies rarely alter AOP language that allows the company to do a “ chain acquisition ,” which typically applies to a group of hotels if substantially all of such hotels are merged with or acquired , franchised or operated by the company — even if such hotels fall within the hotel ’ s AOP . Owners ’ remedies are limited when they believe company ’ s addition of a property with a different company brand will negatively affect their hotel :
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Often , a company ’ s response |
is to offer an impact study . These studies are usually performed by consultants having an ongoing relationship with the company , which may disincentivize comprehensive and fair studies . Additionally , impact studies may fail to consider the aggregate effect multiple new hotels will have on the market , including the longer period of time it takes the market to absorb the aggregate number of new rooms . Further , while owners are usually required to pay for the impact study , they may never receive a copy nor have the opportunity to challenge it .
Litigation is usually prohibited , and arbitration to block the addition of competing hotels is a significant challenge for owners . Often , owners struggle to prove the company failed to abide by the AOP language , which understandably results in an outcome in favor of the company . In the unlikely event of a judgment in favor of the owner , determining the appropriate remedy can be difficult .
REMEDYING AOPS Though the inefficacies of current AOPs and the diverging interests of owners and companies might make revisiting these provisions daunting , today ’ s era of significant brand proliferation could open the door to altering AOPs in several ways to better protect owners from competing hotels : � AOPs could preclude new hotels with characteristics
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that make them more likely to compete with the hotel for guests , rather than being limited solely to the hotel ’ s brand . For example , the AOP could restrict the company from adding hotels ( regardless of brand ) with similar number of keys , square footage of meeting space , amenities , target segments or business mix , target “ chainscale ” price points and / or brands within the company ’ s own brand categories . AOPs could also be triggered when a new hotel causes the hotel to be positioned lower in the company ’ s website search listings . � Conditions protecting owners could be added to the AOP exceptions . For example , the chain acquisition exception could be conditioned on the company confidentially presenting the proposed acquisition to a subset of its owner advisory council and proactively addressing that group ’ s concerns . The provision could be further strengthened by empowering this group to impose obligations on the company if the transaction is consummated , such as payments to , or fee reductions
Lan Elliott
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for , adversely affected hotels . � Impact studies could be improved by including owners in the selection of the consultant , owner and company jointly engaging the consultant , splitting fees evenly between the owner and the company and allowing owners to review and rebut the study before it is finalized . � An owner ’ s termination right and / or a liquidated damages ( LDs ) remedy could be added , which would be triggered when a certain number of competing hotels or number of keys are added . LDs could be based on a fixed amount , such as lost revenues and / or income , or the estimated diminution in value of the hotel . This would add teeth to the AOP clause and also give the parties greater certainty as to their potential financial recovery or exposure for a violation . � The LDs that the owner is required to pay upon a voluntary termination of the agreement could be reduced or waived if a competing hotel opens in the AOP .
Companies understandably desire to continue to grow their portfolio of brand offerings . However , as this has occurred , many of today ’ s AOPs no longer meet the original intent of this provision , to protect owners from being negatively affected by new company hotels . This does not mean AOPs are obsolete ; rather , the industry should explore ways to revisit AOP provisions to better protect the reasonable expectations of both parties .
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Mar / Apr 2025 hotelsmag . com 21 |