Australia: Hospitality and leisure: Franchising and industry innovation in Asia Pacific


The majority of hotels operate under a global brand either owned by the operator, leased by the operator, run by the owner (or its manager) under franchise or run by an operator on behalf of the owner under a management agreement. Many global operators have pursued asset-light strategies over the past decade, and franchise and management agreements have now become the preferred type of contract.

In this publication we will look at the asset light strategies of global hotel operators using a 'quick to view' educational referencing guide as well as looking at technology interoperability issues within hotel franchising.


Whilst many protagonists described the hospitality market of 2012 as 'uncertain', the phrase being used for 2013 seems to be 'modest'. The uncertainty of the 'fiscal cliff' in the US (which inevitably effects all world markets) has been replaced by a 'fiscal ceiling'. Although Economic performance continues to vary greatly around the world, performance by some countries in Asia Pacific have largely remained stable and it is predicted this will continue in 2013. However, Hotels may achieve modest price inflation throughout the Asia Pacific region but specific results will vary widely by country.

Therefore whilst there will be growth, this growth will be patchy. The challenge for hoteliers will be to build, manage and differentiate their brands across all market segments and territories and in doing so to understand what customers are looking for to gain the all-important brand loyalty.


The power of brands (and thus the draw of franchising) remains a key influence on the hotel sector and whilst there are numerous challenges facing global hotel operators, these operators remain best placed to face those challenges. As we are all becoming increasingly aware, the volume and richness of data and information now available to consumers (and to the operators themselves) is huge. Traditional media (such as print) is no longer important, digital platforms like Expedia and Google Hotel finder are where the action is at. Add to this the consumers' requirement for mobile bookings and the rise and rise of social media platforms disseminating information ('likes'; 'dislikes' and twiterrati followers), it is easy to come to the conclusion that innovation will be the focus for the hotel industry in the coming years.

Innovation can come at a micro or macro level, however for obvious reasons (namely resources), the large hotel operators are best placed to take advantage of the technological revolution that has become embedded in the travel industry. The majority of global hotel operators are engaged in programs to decipher real time information and experiences and to define their particular brands with consumers.

A well-defined brand plus meeting customer expectations in terms of their experience are the cornerstone of the franchise system, therefore hotel franchising will remain critical to growth and geographical expansion in the hotel sector. Whilst adoption of technological change is seen as 'a must', the legal implications of doing so are numerous. The bigger players have the resources to invest in new media platforms, mobile booking systems, data harvesting and Wi-Fi access but they will have to be cognisant of the e-commerce, privacy and data protection, licensing, security, cookies and numerous advertising issues associated with it. Our series of 'Shifting Landscapes' articles (www.dlapipershiftinglandscapes. com) provides an excellent overview of the main legal challenges organisations face in the context of new and emerging IT and digital technologies.


Innovation can also be seen in the context of eco-friendly policies. Today's consumers are increasingly environmentally aware and expect the brands they affiliate with to be likewise engaged.

The combination of regulatory pressures and guest requirements for sustainable and value for money options make the hotel industry extremely challenging. Implementing sustainability policies across a portfolio of franchised hotels is particularly demanding for hotel operators and achieving the right blend of eco-friendly brand, with commercial realities and local regulatory compliance is no mean feat.

Towards the back of this guide we also consider other areas of innovation that may yet impact on the hotel industry and what this might mean for franchised hotels.

Theme Franchise Agreement Management Agreement
What is granted? Hotel owner is licenced a package of IPRs, essentially relating to the 'brand' of the hotel operator. These IPRs are to be used in the management and operation of the hotel. Centralised marketing, advertising and reservation services are provided for a further fee (see below). Management and operation of the hotel remains the obligation of the owner.

Operator will:

Manage and operate the hotel on behalf of the owner;

  • Provide technical services (eg in relation to the design and development of the hotel);
  • Licence its brand; and
  • Provide centralised adver tising, marketing and reservation services.

Clearly under this structure the hotel benefits from the 'hands on' experience of the operator.

What are the owner's obligations?

Whilst overall management of the hotel remains with the owner, the owner is required to:

  • Adhere to the operator's 'brand standards manual' in terms of both the brand and the standards applicable to that brand;
  • Par ticipate in group marketing and adver tising;
  • Par ticipate in the group's reservation system;
  • Where the hotel is being constructed or renovated, obtain the operator's approval for the relevant plans and specifications;
  • Open the hotel on the specified date (some operators may require 'grand opening event(s)';
  • Prepare and maintain records and accounts to be shared with the operator; and
  • Comply with all legal requirements and provide the operator/franchisor with protection against any claims.

Although management and operation of the hotel is provided by the operator, the owner will remain responsible for:

  • Compliance of the hotel with the operator's brand standards (and the cost of renovations associated therewith);
  • The cost of maintenance and repairs;
  • Insurances;
  • The employment of non-management employees;
  • Obtaining regulatory licenses for hotel operation, such as liquor licence etc;
  • Real estate issues, such as lease renewals,zoning requirements, etc;
  • Although not an obligation per se, owners will often seek the right to approve annual budgets, capital and FF&E budgets, approve key personnel positions, review the hotel's accounts, apply performance tests and for a reasonable non-compete restrictive covenant.
What is provided by the operator?

The operator will typically provide:

  • Training on the operation of the hotel according to the 'system' (some training may be incorporated in the fees, some may involve additional charges);
  • Providing and updating the brand standards manual(s);
  • Occasionally pre-opening services (which may form part of the fee structure or could be payable separately);
  • Access to the operator's marketing, adver tising and reservations system; and
  • Technical services may be provided on other areas albeit this is likely to be for additional fees.

The operator will typically:

  • Operate the hotel according to the Brand Standards;
  • Include the hotel in the operator's marketing, advertising and reservations system;
  • Have authority to conduct day-to-day operation of the hotel including purchasing goods and services, conducting litigation, managing staff etc;
  • Provide technical services relating to the design and development of the hotel (this is often subject to a separate technical services agreement and fee).
What are the fee structures?

A typical fee structure involves:

  • An initial fee (this is often linked to the size of the hotel). In some cases this fee is non-refundable;
  • Continuing or royalty fees – this is based on room revenue. Typically this is between 3% and 5% of room revenue;
  • Adver tising/marketing contribution – again commonly based on room revenue. This fee generally goes towards a fund for group (not necessarily local or regional) marketing. Typically between 2% to 4% of room revenue;
  • Reservation fee(s) (can be combined with above) – supports cost of operator's reservation and/or loyalty system(s). Rates and calculation vary between different operators and the systems they operate.

A typical fee structure involves:

  • 'base fee' – typically between 2% to 4% of gross revenue;
  • 'Incentive fee' – typically around 10% of gross operating profit;
  • Technical services fees – lump sum or payable on a time and materials basis for relevant services;
  • Centralised services fees – often made up of:
    • Marketing fees – typically in the region of 2% of room revenues;
    • Reservation fees – calculated per room or against room revenue;
    • Loyalty and other programmes provided.
Standards applicable Hotel operators commonly have a brand standards manual or operating manual. Compliance is key. Brand standards manual. Again compliance is key.
Applicable restrictions Whilst post expiry/termination restrictive covenants can be enforceable in a franchise agreement, the underlying principle is that the restriction must be reasonable. In the context of an asset run as a hotel it is difficult to consider a situation where it would be reasonable to place such a restriction on the hotel/ owner. HMAs typically contain a restriction on the operation of similar hotels within a prescribed area.
Personnel As management and operation of the hotel remains with the owner, the owner will employ all people associated with the operation of the hotel. Operator will usually provide key management personnel (at a cost to the hotel). Most operators will require that the owner remains the employer of the remainder of hotel staff.
Personnel As management and operation of the hotel remains with the owner, the owner will employ all people associated with the operation of the hotel. Operator will usually provide key management personnel (at a cost to the hotel). Most operators will require that the owner remains the employer of the remainder of hotel staff.
Legal requirements Franchising is a regulated activity in a number of countries and the franchisor or brand owner is commonly required to disclose detailed information about the franchise it offers. See overleaf for more detail in relation to European disclosure requirements. The HMA is a contractual document that is not regulated by specific laws, however, local laws will apply notwithstanding the governing law of the HMA.
Multiple operations Whilst it is common for operators to offer a 'direct franchise' (ie between hotel owner and operator), franchising also offers the potential for operators to grant third parties with a 'master franchise' or 'development rights' for a specific territory.
Term Typically between 5 to 15 years but can be more. Often includes options to renew. HMAs are typically between 15 to 25 years and often incorporate renewal provisions.

From this table it can be seen that management agreements generate more revenue per hotel for the operator. However, the costs associated with managing hotels, particularly on an international basis, is an awkward fit with the rationalised, lean model which is currently preferred.

This said, there are still many instances when management agreements are preferable. Flagship hotels, new and emerging brands and hotels in emerging markets are more likely to flourish under the tighter brand controls offered by a management agreement.


Where a hotel operator seeks to licence its brand by offering franchises it may be required to meet certain mandatory regulatory requirements depending on the jurisdiction in which the franchise is to be offered. The US market is highly regulated, and operators or franchisors are required to provide a franchise Disclosure document (or UFOC) to owners looking to bring their hotel under the particular flag. Aside from the US, a number of countries across the globe have specific franchise laws (for example, Australia, Belgium, China, France, Italy, Malaysia, Indonesia and Spain) but even in countries where specific franchise laws do not exist there still may be a requirement (or good practice) to disclose information on the franchise being offered. In jurisdictions where a franchisor is a member of a franchise association, such association may impose a disclosure obligation on its members through a non-statutory code of practice.

Outlined below is a high level summary of the filing and disclosure obligations in some key Asia Pacific jurisdictions.

Country (Regulations) Filing Obligations Disclosure Obligations


(The Franchising Code of Conduct - 1998 as amended; Competition and Consumer Act 2010, The Australian Consumer Law 2010)

There are no specific franchisor filing obligations.

The offer and sale of franchises is generally affected by the principles of common law and, in particular, contract law. It is also regulated by the Competition and Consumer Act and The Australian Consumer Law (which contains provisions regarding misleading or deceptive conduct).

There are specific disclosure obligations.

The requirement for the franchisor to give to prospective franchisees and to franchisees renewing, extending or extending the scope of their agreements a disclosure document at least 14 days before receiving any non-refundable money from the franchisee or before the franchisee enters into a franchise agreement or an agreement to enter into a franchise agreement.

Matters that require disclosing include details of the franchisor and its directors and associates, including their business experience, details of litigation involving the franchisor or its directors, the franchisor's financial information, a summary of the various payments and costs associated with buying, establishing and operating the franchise and a summary of the obligations of the franchisor and franchisee under the relevant franchise agreement.

The disclosure document must be in the prescribed form not only as to the information to be disclosed but also as to the layout of the document. A copy of the franchise agreement (in the form in which it is to be executed) and the Code must also be included with the disclosure document.

Franchisors must update their disclosure document at least annually within four months of the end of each financial year. For most franchisors the financial year concludes on 30 June, and therefore the update must take place by 31 October each year.


(Regulations on Administration of Commercial Franchise 2007 as amended; Administrative Measures for Information Disclosure Of Business Franchise; Measures for the Administration of Record-Filing of Commercial Franchises)

There are specific franchisor filing obligations.

The franchise regulations require that the franchisor satisfy several conditions, inclusive of the registration of its core trademarks in the PRC and evidence that the franchisor has owned and operated at least '2 units for 1 year' immediately prior to the application. In the case of hotel franchising the PRC will accept as proof of 'ownership and operation' the fact that the franchisor has exclusively managed at least 2 hotels.

There are specific disclosure obligations.

The Franchise Regulation requires the franchisor to provide the disclosure document to the perspective franchisee at least 30 days before the franchisor and the franchisee sign the franchise agreement.

Matters required to be disclosed include details of the franchisor and its directors and associates, including but not limited to their business experience, details of litigation involving the franchisor, the franchisor's financial information, a summary of the various payments and costs associated with buying, establishing and operating the franchise and a summary of the obligations of the franchisor and franchisee under the relevant franchise agreement.

Hong Kong

The offer and sale of franchises is generally affected by the principles of common law and, in particular, contract law. It is also regulated by the consumer laws that contain provisions regarding misleading or deceptive conduct.

There are no specific franchisor filing obligations. There are no specific disclosure obligations.


Franchise Law in Indonesia is governed by Law No. 42 of 2007 dated 23 July 2007 on Franchising (Regulation No. 42) and its implementing regulation, Regulation of the Minister of Trade No. 31/M-DAG/PER/8/2008 dated 21 August 2008 on Implementation of Franchising (Regulation No. 31), and the Decree of the Director General of Domestic Trade No. 138/PDN/ KEP/10/2008 dated 31 October 2008 on the Technical Guidelines for the Implementation of Franchising (Decree No. 138).

The Indonesian Supervisory Commission on Business Competition (the Commission) has formulated franchise guidelines (Regulation No. 6 of 2009 on Guidelines for Exemptions from the Implementation of the AntiMonopoly Practices and Unfair

There are specific franchisor filing obligations.

There are specific disclosure obligations.

Prior to entering into a franchise agreement, a franchisor must provide a prospectus disclosing its business data or information to a franchisee at least two weeks before the execution of the franchise agreement, including but not limited to the identity of the franchisor, the business history of the franchisor, the organisational structure and management hierarchy and the balance sheet for the past two years.

Business Competition Law for Agreements Related to Franchises (Guidelines)).

Early in 2013 the Indonesia government implemented additional regulations such as MOT Regulation on Franchise Partnership Development for Food and Beverage Businesses. Such regulations will have a significant impact on franchisor's activities in Indonesia


The Medium and Small Retail Commerce Promotion Act (Law No. 110 of 1973 – MSRCPA);The Guidelines Concerning the Franchise System (Franchise Guidelines) under the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (Act No. 54 of 1947 – Antimonopoly Act).

The Japan Franchise Association ('JFA') has also implemented voluntary rules, such as the Japan Franchise Association Code of Ethics and theVoluntary Standard Regarding Disclosure and Explanation of Information to Prospective Franchisees.

There are no specific franchisor filing obligations

The Guidelines set out disclosure obligations.

Under the MSRCPA,when a franchisor intends to negotiate a franchise agreement with a prospective franchisee, the franchisor must provide written documents describing the prescribed items and explain the contents of the written documents to prospective franchisees. There are no regulations regarding the frequency of updating disclosures.

Some of the information that must be disclosed includes but is not limited to the name and address of the franchisor, number of full-time employees and, if the franchisor is a company, the title and names of officers; the amount of capital, names of the principal shareholders and, if the franchisor is conducting another business, the type of business, the name of any entity of which the franchisor holds a majority of the voting shares, the balance sheet and profit and loss statement, or other documents equivalent to these with regard to the past three business years of the franchisor's business and if the franchisees need to remit all or part of the sale proceeds periodically, the timing and method thereof.


The Franchise Act that was enacted on 1 November 2002 and most recently amended on 22 March 2010, and its Presidential Decree, are the primary statutes applicable to the franchisor-franchisee relationship.

There is no specific franchisor filing requirement

There are specific disclosure obligations.

A franchisor must provide a disclosure document to the prospective franchisee even if the franchisee does not specifically request it in writing.

The franchisor must register the disclosure document with the Korea Technology Finance Corporation (KTFC) first and then provide the registered disclosure document to the prospective franchisee.

The acceptance of a franchise fee or execution of a franchise agreement is prohibited unless the franchisor provides the registered disclosure document and 14 days have elapsed from the date of provision of the registered disclosure document.

The following broad categories of information are required to be contained in the disclosure document information: the general status of the franchisor; the current status of the franchisor's franchise; any legal violation by the franchisor and its executive; the obligations of the franchisee; conditions of and restrictions on business activities; detailed procedures and the period required in respect of the commencement of franchise business; and education and training programs (it must be specified if there is no plan for education and training).


Franchise Act - 1998 as amended.

There is a specific franchisor filing obligation.

There are specific disclosure obligations.

The franchisor must submit to a franchisee a copy of the franchise agreement, together with the disclosure documents, at least ten days before the franchisee signs the agreement with the franchisor.

The disclosure documents must contain information including: name, business address and type of business, including the franchisor's business experience; details of the intellectual property rights granted to the franchisee; types and amount of fees imposed on franchisees; other financial obligations, including advertising, training or service fess payable; whether the franchisee is required to purchase equipment or products from the franchisor; the franchise term, terms for renewal and termination of agreement by the franchisor or franchisee, and the parties' obligations upon termination; and the franchisor is required to submit audited financial statements for the past three financial years and financial forecasts for five years pursuant to the Franchise.


There are no specific laws governing franchises in Thailand; other laws will govern the franchise relationship, including the Civil and Commercial Code (related to the establishment and enforcement of contracts), the Trademark Act (related to the licensing of trademarks), the Trade SecretsAct (related to know-how), and the Revenue Code (related to withholdings on royalty payments).

A draft Franchise Act has been proposed, though not yet enacted.

There are no specific franchisor filing obligations.

There are no specific disclosure obligations.

This landscape will likely change if the most recent draft of the Franchise Act is enacted into binding law. The draft includes a requirement that after a franchise agreement is fully executed and delivered, the franchisor must reveal all information that is necessary for operating the franchise business to the franchisee within 60 days. The draft does not specify the type of information considered to be 'necessary' however, so unless future drafts of the bill address this omission, the requirement will exist but will remain fairly vague. Since there is no legislation forcing specific information disclosure, no specific government agencies are responsible for enforcing disclosure requirements.


The basic regulations on franchising are provided in the Commercial Law adopted by the National Assembly in 2005 (Commercial Law). These regulations are elaborated in Decree 35 of the Government (Decree 35), and Circular No. 09/2006/TT-BTM (Circular 09) of the Ministry of Industry and Trade (MOIT).

There is a filing obligation.

There is a franchise disclosure obligation.

The franchisor must provide a prospective franchisee or master franchisee with a disclosure document entitled 'Introduction of the Franchise Business' and a copy of the draft franchise agreement at least fifteen working days prior to the execution of a franchise agreement, unless the parties otherwise agree to a longer time. Introduction of the Franchise Business must be prepared according to the standard form provided in Circular 09.

Information to be disclosed is specifically described in the standard form of the Introduction of the Franchise Business attached to Circular 09.


This section of the publication focussed on Asia Pacific franchise Filing and Disclosure requirements, however, Europe and the United States have comprehensive franchise laws and regulations that have been in place for many years.



A global 'one size fits all' approach to hotel management styles does not work. Franchising is the mainstay in the US, whilst in Europe there is a broad mix of leasing, ownership, franchising and management agreements. International operators in China and other emerging markets currently favour management agreements as they allow tighter brand control, though recently we have seen experimentation with different approaches which may or may not become preferable.

'Franchise light' or 'minifranchises' are being offered in Continental Europe. These agreements give the owner the benefits of 'system affiliation' associated with an established brand, but based on softer branding than that envisaged under a standard franchise with a big operator and at considerably less cost. Whilst this is clearly a reaction to the current economic climate and the nature of the European market, given the compromises that need to be made on branding it is questionable how attractive the concept is to major operators.

'Manchising' is, as the name suggests, a hybrid form of franchise and management agreements. The forms of contract can vary from a complete combination of both forms of agreement, to one that is initially a management agreement but which after an initial term, say five years, moves to a franchise relationship. The rationale behind manchising is that the operator has greater control over the operation of a hotel through their management at the outset of the relationship, which is not the case with a 'pure' franchise agreement. This approach has clear advantages for operators launching new brands and/or entering new territories.


At the start of this guide we talked about 'game changers'. The most obvious at the current time is operator engagement with the technology revolution but another, which is highly relevant to franchising, is partnering with other 'brands' (most notably food & beverage related) to enhance the guest's experience. Examples abound, from the likes of celebrity chefs such as Gordon Ramsey to Dunkin Donuts and Costa Coffee. Many of these brands are operated on a franchise basis and give the hotel a point of difference to its competitors. However history is full of failed examples and the message has to be to ensure that brand partnering is mutually beneficial.


In the new era of mobile shopping and brand inter action maybe hotel operators will become cognizant of offering a retail experience to its customers within the walls of the hotel itself to further enhance the customer's experience. 'Click & Collect' branded stores already exist in the retail space, maybe the concept could be extended to City hotels? After all, this is merely an extension of partnering in the context of food and beverage and luxury commissions are already a part of the hotel industry's DNA.


There was a time when technology in a hotel was better than that at home. This trend has somewhat reversed lately due to the domestic spread of technology such as smartphones and tablets tied with the significant infrastructure costs for hotels to 'get connected' and offer guests the experience they now take for granted. The prospect of seeing guest tablets in rooms now seems to be the future and research suggests there are potential benefits for operators – where used data suggests guests are more likely to use services such as room service or treatments where the services are electronically made available via tablet app or similar. The possibilities for operators (and/or their partners such as the luxury boutique owners per the above) seem vast and it will be interesting to see how operators seize the initiative.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.

DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to

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    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions