A Legal Look at Area of Protection for Hotel Owners

Hotel entrance

Hotel owners generally have protection from their own hotel brand establishing another hotel nearby, but what about a different brand under the parent company? Marriott, for example, the world’s largest hotel company, has 30 brands. Accor has 33, while Hyatt has 10.

Hotel lawyer Bob Braun explains how changes in the hotel industry have affected area of protection (AOP) clauses and what owners need to know, remember and act upon going forward.

For a hospitality chain, a portfolio of brands used to represent a customer and regional segmentation strategy designed to target buyers across the economic spectrum and resonate with local preferences.

Before the mergers and acquisitions, new brand launches, and the development of soft brands, a hotel chain typically had a few iconic brands in each chain scale that customers could easily recognize and differentiate from the competition. Guests could rely on their knowledge of the brands for a predictable experience commensurate to the brand promise. Moreover, it was common for brands to operate, own, or both operate and own properties, giving brands “skin in the game” and greater ability to create a uniform guest experience. Over the years, however, franchising became the preferred model for growth, shifting more of the costs of development and costs of ownership to hotel owners. Today, you would be hard-pressed to name a hotel that owns a significant number of properties.

While the move to managed and franchised hotels freed up capital to invest in new growth, the brands faced a new dilemma — how to build or convert more hotels in a market where they already had operating branded properties. After all, brands could not rely solely on fee-based revenue from existing properties growing at single-digit RevPAR to meet expectations of Wall Street investors, but they also couldn’t open the same brand next to one that already existed. —Bob Braun, Global Hospitality Group