A3495 1R

An Act concerning hospitality franchises and supplementing P.L.1971, c.356 (C.56:10-1 et seq.).

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. a. For the purposes this act, a franchise, as defined in 16 C.F.R. 436 and 437, that is a hospitality franchise, shall be considered merchandise for the purposes of P.L.1960, c.39
(C.56:8-1 et seq.).

b. Notwithstanding any provision of section 4 of P.L.1971, c.356 (C.56:10-4) to the contrary, this act shall apply only to a hospitality franchise, the performance of which requires the franchisee to establish and maintain a place of business within the State of New Jersey.

c. For the purposes of this act:

“Consideration” means a rebate, commission, licensing fee, marketing fee, transaction fee, system fee, system activity fee, services, or any other thing of value;

“Franchisee advisory committee” means a committee, council, board, or other body elected by the franchisees and independent from the franchisor, and charged with enhancing communication, working together to improve the system, and helping to resolve challenges that impact the franchise system as a whole;

“Hospitality franchise” means a written arrangement for a definite or indefinite period, in which a person grants to another person a license to use a trade name, trade mark, service mark, or related characteristic, and in which there is a community of interest in the marketing of goods or services at wholesale, retail, by lease, agreement, or otherwise, where the goods include any hotel, motel, inn, tourist camp, tourist cabin, tourist home, rooming house or similar establishment where sleeping accommodations are supplied for pay to transient or permanent guests.

2. It shall be a violation of the “Franchise Practices Act,” P.L.1971, c.356 (C.56:10-1 et seq.) for a hospitality franchisor or an entity owned or controlled by the franchisor or affiliated under common ownership by the franchisor to:

a. Receive, directly or indirectly, any consideration from any vendor, or affiliate of a vendor, that sells goods or services to a franchisee of the hospitality franchisor unless the consideration received from such vendor, or affiliate of a vendor, is¹:

(1)¹ fully disclosed to the franchisee ¹or is disclosed in the franchise disclosure document;¹ and

¹(2)¹ promptly turned over to the franchisee ¹or is placed into a dedicated expenditure fund, of which the disbursements are approved by the Franchisee Advisory Committee, that benefits the franchisee.

As used in this section, “disclose” means the individual itemized reporting on a per-vendor basis of any consideration from any vendor, or affiliate of a vendor, that sells goods or services to a franchisee of the hospitality franchisor and reporting of the material terms of any agreement with the vendor or vendor affiliate to share revenue or provide consideration to the franchisor¹;

b. Require a franchisee to purchase goods, services, supplies or inventories exclusively from the hospitality franchisor or sources designated by the franchisor where goods, services, supplies or inventories of comparable quality are available from sources other than those designated by the franchisor. However, the publication by the franchisor of a list of approved suppliers of goods, supplies, inventories, or services or the requirement that goods, supplies, inventories, or services comply with specifications and standards prescribed by the franchisor shall not constitute designation of a source, and a reasonable right of the franchisor to disapprove a supplier shall not constitute a designation. In the case of goods, supplies or inventories that carry a trademark, trade name or other identifying characteristic of the franchisor, the hospitality franchisor shall not unreasonably refuse to license the identifying characteristics to a vendor or supplier who meets the franchisor’s reasonable specifications and standards for quality of goods, financial soundness and capacity to meet the business requirements of the franchise;

c. Establish, directly or indirectly, a franchisor-owned or franchised outlet engaged in a substantially identical business to that of the franchisee within the franchisee’s exclusive or protected territory, if the franchise agreement provides for either. For the purposes of this act, an exclusive or protected territory is an area in which the franchisor shall not place a company-owned outlet or other franchisee without franchisee’s written consent;

d. Make any material change in the terms of the franchise agreement between a hospitality franchisor and franchisee through any unilateral change, made by the franchisor, to any operations manual or through any bulletin or other communication, unless such change involves material health, safety and welfare protections for the franchisee’s guests or workforce;

e. Impose any fee or charge upon a franchisee that has not previously been disclosed in a franchise disclosure document provided to the franchisee prior to signing the franchise agreement without approval of the franchisee advisory committee or the franchisee’s written agreement to pay the fee or charge;

f. Impose any fee or charge upon a hospitality franchisee for or on account of a franchisee’s failure to enroll a minimum number of guests prescribed by the franchisor in a franchisor’s loyalty program; or

g. Sell points or credits in a hospitality franchisor’s loyalty program ¹directly¹ to a guest for the purpose of permitting the guest to redeem points for a specific stay at a specific franchisee’s facility without compensating the franchisee for the stay at no less than the franchisee’s lowest publicly advertised rate for that stay or the value of the points sold, whichever is less. ¹Nothing in this section shall be construed to restrict a franchisor’s ability to sell loyalty points to airlines or travel partners, financial institutions, credit card companies, or other third-party organizations offering loyalty points to consumers.¹

3. A franchisee’s failure to comply with any provisions of section 7 of P.L.1971, c.356 (C.56:10-7) or this act shall not constitute good cause for termination of the franchise.

4. This act shall take effect immediately and shall apply to franchise agreements that are entered into, modified, amended, or renewed after its effective date.