Dual-branded hotels are becoming more popular as owners aim to capture more guests by having two market segments under one roof. The benefits are twofold: It brings the best of both brands to more guests and consolidates back-of-house operations like housekeeping, reducing overall operating costs. Usually, but not always, the franchisor for the dual brand is the same, say a Holiday Inn Express and an extended stay Staybridge Suites, both IHG flags, under the same roof.
But when the dual brand is with different franchisors, watch for conflicts in the respective franchise agreements. Recently the SBA denied a guaranty payment to a lender on a dual-branded hotel in which the loan defaulted because the one franchise agreement prohibited the franchisee from operating the other dual-branded hotel!
The lender had obtained the franchise agreements for both hotels. However, the franchise agreements contained clauses that when executed together would prevent the operation of the hotels. Specifically, the franchise agreement for one of the hotels stated that officers or owners with 25% or more equity interest may not own, operate, or franchise any guest lodging facility other than that particular facility in the protected territory. The borrower owned 100% of both hotel franchises. As a result, the ownership of the two hotel franchises at the same address was a violation of that particular franchise agreement.
The other franchise agreement contained a clause that stated the franchisee and its owners shall not divert or attempt to divert any present or prospective customer to any competitor. The borrower owned another franchised hotel and intended to operate it simultaneously on the same property, which created an inherent conflict of interest that violated the agreement.
