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BY

MUNZALI DANTATA

BEING

A TERM PAPER PRESENTED AT THE

DEPARTMENT OF TOURISM AND HOSPITALITY MANAGEMENT

FACULTY OF MANAGEMENT AND ENT. STUDIES

LEAD CITY UNIVERSITY

IBADAN

IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE

AWARD OF DEGREE OF MASTER OF PHILOSOPHY (M.PHIL) IN

TOURISM AND HOSPITALITY MANAGEMENT OF THE

UNIVERSITY

SEPTEMBER, 2008.

REGULATING HOTEL FRANCHISE IN THE NIGERIA’S HOSPITALITY INDUSRTY

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TABLE OF CONTENT

Keywords 3

Abstract 4

1.0. Introduction 6

2.0. Background 8

3.0. The problem 10

4. Aims objectives 13

5.0. Review of literature and conceptual framework 14

5.1. Introduction 14

5.2. Concept of franchise 14

5.3. Franchise and its nature 16

5.4. Basics of a franchise contract 17

5.5. Benefits of relationships in franchise 21

5.6. Nigeria Tourism Development Corporation 23

6.0. Methodology 26

7. Data and Discussion of results 27

8. Conclusion 41

9. Recommendations 42

10. References 43

11. Footnotes 46

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Keywords:

� Tourism,

� Hotel,

� Management,

� Franchise,

� Hospitality,

� Entertainment,

� Hotel,

� Accommodation,

� Catering,

� Act,

� Law.

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ABSTRACT:

That while legislation is the foundation on which the industry is built, Nigeria’s

determined efforts to promote the tourism Industry started since 1962. These includes the

recognition of Nigeria amongst World Tourism Organization membership which as at

2004 recorded 190,000 international arrivals to Nigeria and a receipt of $280million

with a downstream economic impact of $224million(UNWTO:2004) and the increasing

investments(DFI) in the sector. Both the multinational corporations and domestic

investors impacted on the industry through either direct or indirect investments or

management of the outfits. Of particular interest is the management style introduced by

the multinational management chain through franchise. Transcorp Hilton Hotel in Abuja

for instance, being a Nigerian outfit with foreign franchise management has produced

both benevolent and negative benefits. The NOTAP Act No:70 of 1979 and the NTDC Act

No: 81 of 1992 has the objectives encourage investments, knowledge transfers and to

make Nigeria the ultimate tourism destination in Africa. The major problem with

franchising the hotel sector are those of tax evasion through false declaration of profit;

violation of standard regulations of the national regulatory bodies and non legislation of

the sector by the National Assembly with disregard for operational laws. Both hotel and

catering; travel and transport and the entertainment laws are of the colonial times

without reviews to suit Nigeria’s environment. The need for current laws is most

beneficial to increase the volume of inflows and receipts in tourism trade for socio-

economic development of our nation. Documentary data and surveys of current trends in

the legal environment was used in this research. It was discovered that both participants

in the industry suffer major injuries from poor regularization owing to much powers

given NTDC with inadequate funding and staffing. Laws regularizing the specialized

service, the provider, the operator and the client are not fully functional. Disrespect for

the few laws in place has further priced the nation low in choice destinations. The paper

concluded that Nigeria has rich tourism resources both developed and underdeveloped.

Yet, the only legal act empowering the industry lacks full powers to prosecute

basic functions with mitigations particularly on hotel franchising. Thus, it is

recommended that, for the industry to forge ahead and become the ultimate tourism

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industry in the global market, legal aspect relating to hotel franchise and related service

provisions in the industry must be reviewed and amended with new enactments to

achieve the Sustainable Tourism Development Millennium Goal.

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1.0 INTRODUCTION:

It is recognized that hotels, airlines, entertainment and other tourism stakeholders

worldwide are operating in a rapidly changing environment. In the tourism industry of the

fifties, computer-linked worldwide reservation systems seemed as farfetched as putting a

man on the moon. By the seventies, hotels, airlines and travel agents were enjoying such

services, backed by independent specialized reservation companies. By the early nineties,

travelers have started booking hotel rooms and airline seats sitting right there in their

homes, without having to visit offices of hotels, airlines or travel agents. By the late

nineties, travelers were paying for hotel rooms and buying airline e-tickets online, courtesy

of internet facilities.

At the beginning of the twentieth century innkeepers around the world were offering beds

to wayfarers in single location small inns. By the middle of the century it became common

place for hotels to have many branches in different locations, and offering bigger facilities;

heralding the era of mega international hotel chain companies.

In today’s litigious society, a growing number of people won’t just forget about a failed

airline or hotel booking, or food poisoning in a restaurant which necessitates constant

review of laws. Rapid developments in the hospitality and tourism industry, therefore,

have resulted overtime in the emergence of related legislation in many countries of the

world covering new trends from premises and food liability, to franchising, employment

and management contracts etc.

Existing law in Nigeria covers the tourism and hospitality industry such as food liability

which is has seen cases based in tort law. Other laws covering transportation, labour,

taxation etc also impact on the tourism and hospitality industry.

Meanwhile, the 1999 Constitution, the supreme of the land, is silent on tourism, which

therefore places tourism under the Concurrent List. This means that tourism is not on the

Exclusive List of the Federal Government, or the National Assembly, and State

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Governments and their assemblies have jurisdiction over tourism(CFRN:1999).

Various administrations in the Nigeria’s governments in the last few decades have taken

steps to promote tourism in pursuit of initiatives aimed at diversifying the national

economy from a mono-based economy, heavily dependent on the oil industry. The steps

include the establishment of the Nigerian Tourism Board (NTB) in 1976, which became the

Nigerian Tourism Development Corporation (NTDC) in 1992, with a National Travel

Bureau (NTB), a tour operating company, under the NTDC to offer tour operation services

to tourists and travel agents.

A new National Tourism Policy (NTP) was launched in 2006 which replaced the National

Trade and Tourism Policy (NTTP) of 1990. This however came on the heels of the Nigerian

Tourism Development Master Plan (NTDMP), launched by the Federal Government in

2007. Both the Act and the policy encouraged investments from domestic and foreign

interest in form of management contract to include hotel franchise amongst others.

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2. BACKGROUND

The development of the hospitality sector by the colonialist is apparent with the

development of ubiquitous government “Catering Rest Houses” established mostly

between 1920s and 1930s in virtually all the provinces across the country. Other guest

house, inns, lodges and hotels sprang up over time ran by corporate organizations. From

what were then the catering rest houses, they developed into full fledged hotels owned by

the Federal and State governments. Instances are given of the Metropolitan hotel, Port

Harcourt, Central Hotel, Kano; Ikoyi Hotel, Lagos; Hill Station Hotel, Jos among others.

These hotels became under the management of Nigeria Hotels Limited and some were sold

to private individuals under the Privatization exercise(BPE:2003). Some States also

inherited the rest houses to transform them into State Hotels like those found in

Maiduguri in the 1930s.

The Public Corporations and Organized Private Sector were also encouraged to participate

in the hotel business and that gave birth to most high class hotels found across the cities to

include Nicon Hotel now Transcorp Hotel under Contract Management of Hilton Group.

Hospitality legislation in Nigeria is rooted in the laws of the United Kingdom (UK)

inherited with the colonization of Nigeria effective from the 1st day of January 1900.

Hilton Group is a global company operating in the hospitality and gaming markets with

the leading brand names of Hilton and Ladbrokes. The group intends to enhance

shareholder value by exploiting its prime position in these international markets, both of

which are expected to experience significant long-term growth.

Since Hilton Group plc was founded more than 115 years ago as a small agency to handle

the horseracing bets of England's high society, it has grown from a simple partnership

between a local horse trainer (Arthur Bendir) and a friend to become one of the world's

leading companies in the hotel and leisure industries. The partnership, originally known as

Ladbroke and Co., was named for the village in the county of Warwickshire, England,

where it was first established; it became Ladbroke Group PLC in 1967 and then Hilton

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Group plc in 1999. In the new millennium, Hilton Group consisted of two divisions. During

2001, the former generated only about 37 percent of the revenues of Hilton Group but was

responsible for more than 60 percent of the profits.

Hilton International holds the rights to the Hilton name outside of the United States, and

it operates more than 380 hotels--under the Hilton and Scandic brands--in 70 countries

worldwide including Nigeria. Since early 1997 Hilton International and Hilton Hotels

Corporation have cooperated, through a worldwide marketing alliance, on such matters as

sales and marketing, the Hilton Honors loyalty program, and a central reservation system.

Hilton International also operates more than 90 LivingWell health

clubs(www.hiltonhotelscorp.org).

Hilton has its services in Nigeria since 1980s managing the Nicon Hotel now Transcorp. It

has over 500 room’s capacity and rated among the high class hotels in Nigeria. Under the

franchise and management contract agreement, the Hilton group has been able to meet

most of its obligations through respect of the agreements in training indigenes that in turn

have been able to specialize and establish their outfits. Some are selling their skills to other

hotel operators.

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3. THE PROBLEM

Nigeria is a nation blessed with abundance of tourism potentials ranging from a rich

cultural heritage, ecosystem and other natural and man-made resources, with abundance

of developed tourism services covering transport, hospitality and other sub-sectors with

active service providers such as tour operators, travel agencies, hotels and resorts

operating, but whose services are not well organized due to lack of adequate legal

frameworks.

Aviation, a sub-sector of transportation which accounts for over 90% of international

tourist arrivals, is an international industry covered by international organizations such as

the International Civil Aviation Organization (ICAO), a specialized technical agency of the

United Nations, and countries can suffer sanctions such as delisting of their airports from

approved airport that meet international standards.

In the hotel and catering business, on the other hand which is the area of interest, there are

no such international organizations with powers to sanction hotels for not meeting set

down standards. This is most witnesses with the hotels managed on contract under the

auspices of hotel franchise. The laws covering the hospitality sub-sector are scattered

among many statutes which this paper will attempt to critically examine and criticize.

Amongst the laws or legislation governing the operations of the hotels for instance the

Hotel Proprietors’ Act is foreign are outdated.

Also still enforced but due for review in Nigeria is the Inn Keepers’ Act of 1878 received

from the UK laws that regulated the hospitality industry in the colony of Nigeria from the

1900s up to near independence, which influenced the Hotel Proprietors’ Act of 1956, and

the Occupiers’ Liability Act of 1957.

The primary concern of these legislations was safety of life and property of visiting guests,

with a reasonable “duty of care” placed on hoteliers. However, this legislation is grossly

abused to the detriment of the client and the industry at large.

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Soon after the independence, Nigeria became a federation of three regions, and there after

four with each having parliaments making laws for their regions which gave very little

attention to the laws relating to the industry.

Given the call for foreign investment in the sector, franchising as a form of management

contract was introduced to have chains like Hilton, Sheraton, Le Meridien and Protea

taking over three to five stars hotels to manage. Hence, cases of tax evasion, false

declaration of profits for capital gains were common features among repatriation of capital

which is seen as a serious economic sabotage through leakages.

Poor legislation of the sector by the National Assembly is another case in point when the

numbers of laws enacted to legislate the sector are considered.

The Nigerian government’s first intervention in the tourism and hospitality subsector after

independence was in 1962 with the formation of the quasi official Nigeria Tourist

Association (NTA) founded by public and private sector corporations which led to the

admission of Nigeria in 1964 as a full member of the International Union of Official Travel

Organization (IUOTO), the precursor of the United Nations World Tourism Organization

(UNWTO).

In 1976, the military administration promulgated Decree 54 creating the Nigeria Tourism

Board (NTB), partially preparatory to the hosting of the famous world Festival of Arts and

Culture (FESTAC) which was successfully held in 1977.

In 1992, Decree 81 replaced Decree 54 (of 1976) which transformed NTB into the Nigeria

Tourism Development Corporation (NTDC) with a broader operational base to promote,

develop and regulate the tourism and hospitality.

Nigeria is a federation of thirty six states, and one federal capital territory. Since the NTDC

Decree of 1992, there has not been any new legislation from the central government.

However, since the new democratic dispensation from 1999, some of the states have

enacted laws regulating hotels, food, gaming and liquor business in their states. While

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there is only one body at the centre, the NTDC, that regulates tourism and hospitality,

some States have State Hotel Boards and Liquor License Boards and other boards

regulating hotel, bar, gaming and other related businesses, which are separate from and

not under the State Tourism Boards.

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4. AIM AND OBJECTIVES OF THE PAPER:

The aim of this paper is to pursue the legislation and actualization of hotel franchising laws

and its adherence in the hospitality sub-sector for quality service delivery in the industry.

To achieve this aim, a review of the laws related to hotel business in Nigeria with interest

in hotel franchising. Attention is given to franchising in Transcorp Hilton Hotel, analysis of

NTDC Act. Challenges and benefit of hotel franchising in line with legal frameworks of the

laws at domestic and international standards for the elimination of substandard and

poorly managed hotel establishments for best practice are also examined.

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5.0 REVIEW OF LITERATURE & CONCEPTUAL FRAMEWORK

5.1 INTRODUCTION

Law regulates methods and conditions for performing travel trade and hospitality services,

regulates promotion and measures to direct the development and creation of tourism

products. Tourism trade in the context of this law is the offering of services by tourist

agencies, tourist guides, escorts, event organizers and representatives, in the fields, in

nautical, rural, health, religious, congress, sports, youth and other forms of tourism as well

as providing other tourism services such as hunting, fishing, rafting and others.

The hospitality industry in the context of this law is the preparation of food and providing

of food service, preparation and serving of drinks and beverages, and offering

accommodation services, as well as food preparation that will be consumed at other venues

(during travel, at events and similar) and supply of such food (catering).

Business with regard to the promotion and the development of tourism of interest to the

Republic is: to secure tourism trade informative propaganda within the Republic and

abroad; forming and developing information systems with regard to tourism within the

republic and attaining international cooperation in the field of tourism

5.2 CONCEPT OF FRANCHISE

According to Black Law Dictionary (1834) and Agbu (2008), the word franchise means to

grant (to another) the sole right of engaging in a certain business or in a business using a

particular trademark in a certain area. Franchising is a method of distribution whereby a

Franchisor (owner of a franchise), who has developed a particular pattern or format for

doing business grants to the Franchisee (recipient of the franchise), the right to conduct

such a business with a proviso that they follow an established pattern. Franchising because

of the huge range of forms it may take and for the peculiar characteristics which it takes on

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in different countries can still be defined in so many other ways. Two main types of

franchising as Jefferies (1990) and Roberto (1987)*1 gave include the business format

franchise and the product franchise are easily recognizable.

The franchising model, in negotiation parlance is a win-win situation as the franchisee

receives a ready-made method of doing business and the franchisor promises continuing

assistance and guidance in return for an initial fee plus royalties or other agreed modes of

consideration. Franchising as one of the most recent and modern forms of commercial

distribution lends itself to the rapid promotion of investments and technology acquisition

in a developing economy like Nigeria’s.

Under the franchise arrangement, the franchisor by agreement is permitted to impose

various controls over the franchisee. The franchisee, though permitted to use the service

mark, *trademark, or copyright of the franchisor however continues to consider itself an

independent business as in a number of cases, the business may have been in existence

before the grant of the franchise. The pride of ownership is a crucial factor in encouraging

the franchisee to go the extra mile and make the business successful using the model of the

franchisor which provides guidance past the pitfalls that often beset independent

operators.

Franchising, from recent developments, is on the verge of emerging as a veritable business

vehicle for investment spread and promotion as established and indigenous franchise

concepts and brands turn their attention to the opportunities provided by franchising for

growth and expansion, thereby contributing to rapid economic development(See footnote

1). It has also been evidenced that franchising presents itself as an efficient means of

developing small and medium sized enterprises (SMEs) as an alternative to the large

oligopolistic entities(ibid).

Historically, the word franchise as Barth (2001) explained is of French origin meaning

“privilege or freedom” In the middle ages, the local Sovereign would grant the right to hold

markets or fairs, to operate the local ferry or to hunt on his land and it extended to the king

granting a franchise for all manner of commercial activities such as the building of roads

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and brewing of liquor. In essence, the king was giving someone the right to a monopoly for

a certain type of commercial activity. Over time it has evolved as economies of nations

have evolved. In the 1840s in Germany, certain Ale Brewers granted franchises to certain

taverns giving them exclusive right to sell ale.

In 1851 the Singer Sewing Machine Company began granting distribution franchises for

their sewing machines. Singer had written franchise contracts, which were the forerunners

of modern franchise agreements6. From the United States, modern franchising came to

Europe after the Second World War, where it has been subjected to local influences and

modifications.

A franchise agreement is the contract between a franchisor and franchisee establishing the

terms and conditions of the franchise relationship. This is a very technical agreement

requiring the advice and review of a Business Lawyer or consultant prior to execution by a

hotel, motel or restaurant franchisee (ibid). Assessment of the franchisor’s business history

and reputation, as well as actual operations and the franchise system is a sine qua non to

the signing of an agreement and commencement of a franchise relationship. It should be

mentioned that the better known the business name is the higher will be the fees paid by

the franchisee. The Hospitality Industry in Nigeria is comprised of the accommodation,

hotels, resorts and food services sector. The term can thus generally be thought of as a

term denoting both the accommodation industry and the food service (catering) industry.

The term Hospitality means “the reception and entertainment of guests or strangers with

empathy, kindness, and an overall concern for their well-being”. Hospitality has also been

defined as the quality of being hospitable; welcoming behavior towards guests; food, a

place to sleep etc when given to a guest (Hasis et al: 2001 and Black Law:1834).

This paper will attempt to treat the subject of the business format franchising from two

perspectives in the supply of services in the hospitality industry, namely the small business

franchise as in the fast-food franchise and the big hotel chain franchise. Because the

principles of the franchise arrangement are invariably common to both groupings, it is

apposite to examine these principles in general terms and proffer explanations using

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examples drawn from both groupings.

5.3 FRANCHISE AND ITS NATURE

The relationship between the franchisor and the franchisee is not an employment

relationship or a principal/agent relationship. Under the usual terms, the franchisor

cannot be held liable for the acts of the franchisee. As an instance, if a fast–food franchise

negligently prepares a meat pie in such a way that a customer is injured, say by a piece of

sharp bone in the pie, the franchisor will not be liable, only the franchisee is responsible,

the reason being that the franchisee and not the franchisor is the owner and operator of

the business. Though there is a dearth of case law on the aspect of liability arising out of

the operation of the franchised business as this method of doing business can be said to be

still in its infancy in Nigeria, the case of Choice Hotels International, Inc. v. Palm-Aire

Oceanside, Inc. decided in the United States of America illustrates this point in Cournoyer

et al (1999).

A hotel franchisee was negligent in the maintenance of a balcony railing. A two-year old

guest fell seventy feet to the ground when deterioration caused the railing to give way. The

guest sued both the franchisee and the franchisor. The court held the franchisor was not

liable. The franchisor would have been liable only if the franchisor’s agent participated in

the day-to-day operations and management of the business or, where a patron is injured

by a product, if the franchisor made or sold the item that caused the injury. Thus it is

recognized by the law that the franchisor is not liable for the acts of the independent

contractor (in this case, the hotel franchisee) that cause harm to a third party (a hotel

guest) arising out of the negligence or intentional misconduct of an employee of the

franchisee(ibid). Only the independent contractor is liable under the common law doctrine

of vicarious liability or the theory of respondeat superior applicable in America, which

simply means let the employer respond for the legal wrongs of his or her employees, even

though the employer may be blameless(NWLR:1993).

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However, to allow the franchisor to escape liability, the courts must decide whether the

franchisee was indeed an independent contractor. In the case of Woods v. Holiday Inns,

Inc. a court of appeal reviewed the factors necessary to hold a franchisor liable for the

actions of its franchisee’s employee in wrongfully revoking a guest’s credit. The facts of the

case were that upon checking in at a franchised Holiday Inn in Alabama, Wood submitted

his credit card as proof of credit worthiness. The card was accepted without verification by

the front desk and Wood occupied his assigned room without incident. The night auditor

later ran a check on Wood’s credit and found that the card had been revoked.

The night auditor phoned Wood at 3 a.m. (after midnight) demanding that Wood leave

and using harsh and offensive language. It was later found that the night auditor’s error in

punching in the card number had caused the revoked status, and that Wood’s card had

been valid all along. Wood sued both the franchisee and the franchisor alleging slander of

credit and intentional infliction of mental distress.

The court found the franchisee liable, a necessary element in holding the franchisor liable

under the doctrine of respond eat superior. Because there was no express agency

relationship between the Alabama Holiday Inn (the franchisee) and Holiday Inns Inc.(the

franchisor), the court found sufficient evidence of apparent agency to implicate the

franchisor and to give Wood judgment against the franchisor. The court reasoned that a

franchisor may be held responsible for a franchisee’s legal wrongs that damage a third-

party guest only if the franchisor exercised sufficient operational control over the conduct

of its franchisee, regardless of provisions to the contrary in the franchise agreement. Such

factors include construction and maintenance of the franchised premises as specified by

the franchisor; strict adherence to the rules of operation, including granting the franchisor

the right to inspect the unit to maintain compliance; and, most important, granting the

franchisor the right to cancel the franchise for substantial violation of its terms. All these

factors the court found in this case.

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5.4. BASICS OF A FRANCHISE CONTRACT

Jefferies(1990) in recognizing the franchise contract as setting forth the contract

arrangement between the parties and determining their legal relationship has identified

the following matters in relation to hotels for inclusion in the contract:

1). The parties;

2). Definitions;

3). Granting of franchise, description of premises, and area of operation. Franchise may

include rights to use service marks, copyrights, trade secrets and know-how, and patents;

4). Franchise fees and service fees;

5). Obligations of franchisee, including;

a. to maintain and operate the franchised property pursuant to some stated high standards

(and maintain a high ethical standard);

b. to comply with the rules and regulations set forth by the franchisor;

c. to comply with all local, state, and federal laws, ordinances, rules, and regulations; to

obtain any and all permits or licenses required by law;

d. to promote the use of the franchised property by the traveling public;

e. to permit the franchisor to inspect the property at all reasonable times;

f. to obtain and display on the property one or more (illuminated) signs and logos meeting

specifications prescribed by the franchisor;

g. to promote and feature the name of the franchisor in all advertising;

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h. to participate in the reservation system of the franchisor, and to make reservations;

and to accept reservations in accordance with the rules, regulations, and procedures of the

franchisor;

i. to submit monthly standard operations reports to the franchisor, together with such

other reports as the franchisor may require from time to time;

j. to deliver to the franchisor annual statements of operations and balance sheets for the

franchisee’s property, prepared by certified independent public accountants, showing

gross revenues from room rentals, restaurant operations, or from other revenue-producing

sales and activities;

k. To permit the franchisor the right to audit the books of the franchisee.

6). Services of the franchisor may include:-

a. providing operations manual(s) and consulting services to franchise personnel;

b. assisting the franchisee in setting up recordkeeping systems, and administering these

systems;

c. making available signs, promotional material, and stationery, at costs agreed upon;

d. advertising and promotional campaigns on local, regional, and national levels to

encourage traveling public to use franchised properties;

e. sending franchisor’s supervisory personnel to visit and inspect franchise property, and

observe its operation;

f. providing advance reservations services and systems on agreed-upon terms and

conditions and reservations fees if any;

g. listing franchise property in a directory of the franchised properties, if published by

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franchisor;

7). Relation of parties- may include a statement to the effect that the franchisor is an

independent contractor and the franchise agreement does not create an agency

relationship, a partnership, joint venture, or employer-employee relationship between the

parties;

8). Restaurant facilities;

9). Indemnity and insurance provisions;

10). Term of agreement, renewal, termination, defaults and transfer (and any rights of

franchisor to first refusal to acquire the property in the event that the franchisee decides to

sell or transfer the property);

11). Rights and duties of the franchisee and franchisor upon termination;

12). Warranties and representations of the franchisor;

13). Governing law;

5.5. BENEFITS OF RELATIONSHIPS IN FRANCHISE

1). The Franchisee:

a. The name – For a relatively reasonable amount, the franchisee obtains the franchisor’s

trade names and with it the use of trademarks, goodwill and customer acceptance. The

franchisee thus obtains a proven concept with local, national and in some cases

international recognition. Money that would have been spent in achieving the objectives of

new registrations and name recognition is thereby saved for the franchisee.

b. Technical assistance – The franchisee obtains the technical and operational know-how15

of the franchisor. This benefit will usually include market research to decide where to

locate the business16, advise on layout and design of the building, training, recipes,

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accounting methods, information on suppliers, and other assistance that may be needed in

these regards.

c. Group advertising – The franchisor for reasons of uniformity in approach usually

undertakes the print and advertisements campaigns, with each franchisee contributing a

sum of money for promotions. The individual franchisee is thus able to receive the benefit

of an expensive campaign for a fraction of the cost.

d. Exclusive territory – The franchise contract should usually include a provision

identifying an exclusive territory for the franchisee. This provision protects the franchisee

from competition from another franchisee within its proximity. In Payne v McDonald’s

Corp, the franchise contract contained a provision which stated that “No exclusive,

protected or other territorial rights in the contiguous market area of the restaurant is

hereby granted or inferred” The plaintiffs, a McDonald’s franchisee was frustrated when

the franchisor authorized two additional restaurants within two miles of their eatery. In

refusing the claim for breach of contract against McDonald’s, the court held that “The

problem faced by plaintiffs in claiming a breach of contract by McDonald’s is their

inability to point to any provision in the express and unambiguous agreements between

the parties which has been breached by McDonald’s”(COURNOYER, No.10).

e. Stability – Hospitality establishments are notorious for a high level of staff turnover. The

franchise arrangement by not being an employer-employee relationship protects the

franchisee from the incidents of transfer, downsizing and termination as the franchisee is a

captain of his own ship.

f. Reservation systems – a lodging establishment will benefit from a franchisor’s national

or international reservation systems and reach. This benefit has received further impetus

from the use of the internet and other distribution systems where a hotel can make its

products and prices known to travel agents, meeting planners and customers nationally

and across borders.

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2). The Franchisor:

A. franchise fees – a fee is usually paid by the franchisee at the inception of the

relationship. The franchisor continues to receive royalties from the franchisee during the

subsistence of the relationship. The franchisor stands to command greater fees from

obnoxious provisions and restrictive clauses, which may impede the expansion,

diversification or the Licensee’s capability to absorb the Licensed technology. Subsequent

franchisee as the use of the franchise spreads through the increase in the number of

franchisees with the signing of new contracts.

b. Rapid market expansion – this happens as a result of the additional exposure of the

name from the franchisee’s use in the territory of operation. This comes with a minimum

capital outlay for the franchisor.

c. Consistency and public acceptance – contract provisions require the franchisee to

maintain certain standards including size of building, interior and exterior design,

cleanliness, use of logo, restrictions on products sold etc. thus preserving the value of the

name and standard expectations of guests and patrons.

5.6. NIGERIA TOURISM DEVELOPMENT CORPORATION:

Narrowing the review down to the basics, the main tourism legislation in Nigeria is the

Nigeria Tourism Development Corporation (NTDC) Act, which is Decree No: 81 of 1992

establishing the NTDC as the apex regulatory governance body for the Nigerian industry.

The main functions of the Corporation by law includes (1) encouraging people living in

Nigeria to take their holidays in Nigeria, and people abroad to visit Nigeria; (2)

Improvement of tourism amenities and facilities including the development of hotels and

ancillary services; (3) Providing advisory and information services; (4) Promoting and

undertaking research on tourism; (5) Rendering technical advice to states and LGCs in

tourism field; (6) Registering, Classifying and Grading of hospitality and tourism

enterprises, travel agencies and tour operators; (7) Assist in the development of museums,

and historical sites, parks, parks, game reserves, beaches, natural beauty spots, holiday

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resorts, souvenir industries and publicizing tourism.

Against other organizational frameworks, the NTDC by law is expected to have a

Governing Board with a chairman and 12 members representing stakeholder associations,

ministries, and government agencies impacting on tourism activities.

State Tourism Boards:

The Act also provides for State Tourism Board (STB) in each State which are expected to

assist the Corporation in implementing the Act. This includes among other (1) To

recommend measures in their opinion which will enable full effect to be given to be

provisions of the Act; (2) Devise and carry out schemes aimed at encouraging Nigerians to

visit the State; (3) Identify, preserve and protect and develop tourism resources and co-

ordinate the activities of tourism activities.

Local Government Tourism Committee:

Section 10 of the Act established Local Government Tourism Committees (LGTC) whose

responsibility is subject to the control of the STB and the NTDC. Basically, the functions of

the LGTC are to: (1) Recommend to the STB projects for development as tourist attractions

in their locality; (2) Serve in advisory capacity on matters relating to tourism within their

LG Area; (3) Preserve and maintain monuments and museums in their areas of

jurisdiction and (4) Promoting and sustaining communal interest in tourism.

Hotel Inspectorate Division:

Of interest is the Act (Section 14) which establishes the Hotel Inspectorate Division with

the mandate to Register, Classify, Grade and monitor hotels and other hospitality

establishments.

The Act empowers the NTDC to impose penalties on erring establishments that

undermines the mandate of the NTDC. The Act also provide for the maintenance of a fund

consisting of monies provided by Federal Government and other sources and to be used to

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defray expenses incurred by the corporation.

Another area of interest on the Act is that is the subsidiary legislation which makes it

mandatory for hospitality and tourism establishments to register with their services in

accommodation and food, and grading of travel amusement parks etc.

State Legislation:

At State level, Cross Rivers State, among a few other States such as Lagos enacted an Edict

with regulations for tourism and hospitality development. Cross River is today regarded

one of the most developed and new tourist destinations in Nigeria.

Lagos State, as host of the main gateway of Nigeria (Murtala Mohammed Airport) and the

largest number of hotels in Nigeria has for long established its tourism industry on a sound

legal footing, with all the hospitality service providers and facilitators guided by

operational laws (ROM:2006).

One big task for the Corporation is the sharing of powers and responsibilities with such

active State Governments such as Cross River and Lagos States, especially with regards to

registration of hotels and the power for collection of registration fees and power to close

down establishments for non compliance of registration requirements.

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6. METHODOLOGY

The research work is purposive and evaluative in nature. Hence, a particular case study

(Nigeria Tourism Development Corporation) is taken for the purpose of analytical

discussions and clarity. Documentary and survey sources were introduced to collate data

for the research. Qualitative method of sampling technique is used to analyze the data

generated. In particular, Hilton Group as a Franchisor then Transcorp hotel, Abuja

together with

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7. DATA AND DISCUSSION OF RESULTS

In the course of reviewing documents of relevance to the topic in question, facts revealed

that only one core organization responsible for tourism operates under the only

recognizable Act, which is the Nigeria Tourism Development Corporation. The National

Institute for Hospitality and Tourism was once supervised more as a department under

NTDC gained autonomy in 1998, but is yet to have legal backing ten years after. Other

affiliates that exist under the umbrella of the Federal Ministry of Tourism, Culture and

National Orientation are the National Institute for Cultural Orientation, National Theatre,

National Art Gallery, National Council for Arts Culture, Centre for Black Arts and

Civilization and the National Orientation Agency. Others related laws are those of Bar and

Liquor License and the Hotel Proprietors’ Act and Innkeeper’s Act.

Many of the major franchise companies undertake management contracts for hotel

properties as an additional or supplemental system to their existing systems of franchise

arrangements. Major chains like Hyatt, Sheraton and Hilton operate hundreds of

properties under management contracts.

In Nigeria, the franchise relationship inevitably includes a management contract for the

three stars to the five star hotel categories. Holiday Inn, Sheraton, Hilton, le Meridien were

some of the early internationally recognizable franchise names before the entrance of

Sofitel and Protea and in most recent times independent non-foreign names that seek to

establish their identities as franchise concepts in the packaging of their business. Leading

the pack in this later category is the Eko hotel and Suites in Lagos which has since 1974

passed through the hands of four franchisors before taking the decision to go it on its own

in 2004.

Under the management contracts, chain companies furnish management for hotel

properties that are owned by other parties. The chain company as manager provides its

franchise to the property, and uses its trademarks, logos, and reservations systems in

promoting the property. A good example of this arrangement was provided when in 2001

Protea Hotels; a South African hospitality chain management brand went into partnership

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with Capital Alliance Nigeria, an investments and advisory company focused on promoting

private sector-led investments in Nigeria and other West African countries. This

partnership has as at January 2006, resulted in the commissioning of eight properties in

Nigeria. This took the figure up to an impressive ninety nine managed properties in Africa

by the Protea Group.

The use of the management contract has proven very successful to major chains as a means

of rapidly expanding their operations with far less investment than direct ownership

requires. With expertise in franchise operations, financial management, and staffing,

marketing, sales, and reservation services, the chain operator in Nigeria has an advantage

over an independent company in seeking management contracts. The operating

environment would make, for instance, the cost of marketing and reservation services per

property lower for the chain operator, based on the information distribution network and

economy of scale.

In a typical management contract, the manager is responsible for the operation and

management of the property and pays the related expenses. The manager thereafter

deducts its fees according to the agreed formula or percentage. The remaining cash, if any,

goes to the owner who more often than not bears the burden of most or all of the financial

and legal responsibilities–debt service, insurance, taxes, solicitor’s fees e.t.c The term of

the contract is as agreed by the parties and some could be as long as twenty years.

The management contract appears to have an in-built safeguard in the sense that the

manager has no choice but to make profit to be able to deduct its fees or otherwise the

entire arrangement will fail. The hotel franchise containing the supplemental system of

management in the recent past came under criticism in Nigeria in respect of some five star

hotels previously owned by the government and operated by foreign chains. Prior to the

privatization of these hotels, the foreign managers were accused of not having any

succession plan for the indigenous workers.

Training of employees of the franchisee is a serious condition in the contract, and the

foreign managers were perceived not to be doing this. The rationale for their engagement

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in the first place which was to insulate government owned enterprises from the

bureaucracy of government management and leave them free to compete in the market

environment was seen as being abused, as the managers may have used that status to gain

undue advantage. The notion that experienced and specialized hospitality industry

managers may not be readily available outside the chain groups was also considered

unacceptable.

The hospitality Industry in Nigeria under a privatized economy and with the return of a

democratic system of government has become an investor’s delight as more properties

spring up in the major cities of Nigeria and the demand for standardized accommodation

by discerning guests and patrons continues to grow. As witnessed in the fast foods

restaurant business, it will not be long before strong locally developed brands begin to sell

their franchises and with that their managerial competence to other hospitality

establishments in the country and the West African sub-region *2 * 3.

The Tantalizers Fast Food Restaurant Brand founded in 1997 has also commenced a

franchise licensing system to other operators in the business. The Organization states in its

brochure that “after carefully observing and examining the various franchising concepts

used by different players in and outside the fast food industry in developed countries,

Tantalizers has devised an approach for a franchise that will suit the nature of our

country’s economic and social environment”.

The situation that is found under reforms in the legal environment for hospitality

franchises are that at the first instance, there is the issue of antitrust or anti competition in

place. This is also reflective of Nigeria where such transactions abound like the Hilton

franchise matter.

The foregoing provision underlines the seriousness of the consequences for violation of

antitrust laws. It is therefore of urgent importance for the legal regime that supports a

burgeoning franchise system of doing business that antitrust laws be put in place. The

Bureau for Public Enterprises (BPE) has in the past few years championed the call for a

Competition/Antitrust laws in Nigeria, but the efforts are yet to result in the enactment of

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a law(BPE:2003).

Until the enactment of such a law, the following activities that restrain competition in the

Nigeria’s hospitality industry will remain unaddressed. These are in respect of the

following:-

Price-fixing agreements, in which competitors agree among themselves to sell goods at a

certain price and not lower Territorial division agreements, in which competitors assign

each other a territory and agree not to compete in the others’ territories, thereby each

obtaining a territorial monopoly.

Group boycott, in which two or more sellers refuse to do business with a particular person

or company, intending thereby to eliminate competition or block entry to a market. Resale

price maintenance agreements, in which a manufacturer determines the price at which the

retailer must sell.

Price discrimination, where a seller of goods charges different prices to different buyers for

the same product (not applicable to services).

Under the Law of the Federation, Exclusive dealing contracts, a seller (usually a

wholesaler) forbids a buyer (usually a retailer) from purchasing the products of the seller’s

competitors.

In relation to the franchise relationship, tying arrangements pose the most serious

antitrust issue. Under this arrangement, the franchisor often wants its franchisees to

purchase supplies and equipment from the franchisor. The obligation to purchase products

by the franchisee from the franchisor is tied to the grant of the franchise. The result is that

the franchisor is spared from competition from other suppliers and they in turn are denied

access to the market for the tied product. Furthermore, this arrangement which appears to

be heavily weighted in favor of the franchisor ensures the franchisor of both a market for

its products and the uniformity that is so important to franchise operations.

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Until there is specific legislation to provide for these issues it will not be possible to draw

the distinction between activities which are per se violations and those which are subject to

the rule of reason: i.e. these activities are not always illegal, but rather their benefits (such

as economic activity) are balanced against their anticompetitive effects in a particular case.

Where the benefits outweigh the negatives, the activity will be permitted, but where the

impact is too great, the activity is forbidden by law.

Another area of interest is the intellectual property right regime whose traits are

very much found in the country. Though there is no specific legislation dealing with

franchising in Nigeria, the legal components of intellectual property rights which form the

privileges and benefits in the franchise package are protected by existing intellectual

property laws. Intellectual Property Rights are the basis upon which the franchise

relationship is built. The Intellectual property regime extends and has significant effects on

industrial property legislation, copyright legislation, the institutional mechanisms

established for the administration of the two legislations and human resources engaged in

intellectual property matters.

The intellectual property laws are governed by the Copyright law, the Patent and Design

Act, and the Trademarks Act .In international relationships, the international conventions

and other regulations of international origin are to be taken into account. Franchisors are

particularly very protective of their trademarks since the trademarks are the centre of their

licensing agreements and the basis of their profitability. They are of fundamental

importance. Trademark Infringement may take the form of using recognized marketing

strategies, or capitalizing on the franchised name, if only by changing slightly or copying

other aspects of the franchised company’s products and services.

In general, it has been stated that “a healthy commercial law environment is of paramount

importance for franchising. Indeed without it franchising is not able to function. A

“healthy commercial law environment” may be defined as one with general legislation on

commercial contracts, with an adequate company law, where there are sufficient notions of

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joint ventures, where intellectual property rights are in place and enforced and where

companies can rely on ownership of trademarks and know-how as well as on

confidentiality agreements”.

Recently, all the intellectual property rights legislation has been compiled into one, to be

known as the Intellectual Property Laws of Nigeria. To consolidate on this development,

the Nigeria Government has also considered the adoption of a single institutional

framework called the Intellectual Property Commission of Nigeria (IPCON) to administer

the Intellectual Property Laws under one body. It will be stating the obvious to say that

soundness, certainty and uniformity in the legal regime of intellectual and industrial

property will certainly inure to the benefit of a virile franchise regime in a healthy and

investor-friendly commercial law environment.

The Law regulating the transfer of technology in the sector under franchise

agreement in the country is specific and expected to be compliant. As earlier stated,

Section 2(1) (d) of the National Office for Technology Acquisition and Promotion Act.

No.70, 1979 provides that the National Office (otherwise known as NOTAP) shall carry out

the following function – “the registration of all contracts or agreements having effect in

Nigeria on the date of coming into force of this Act, and of all contracts and agreements

hereafter entered into, for the transfer of foreign technology to Nigeria parties; and

without prejudice to the generality of the foregoing, every such contract or agreement shall

be so registra-ble if its purpose or intent is, in the opinion of the National office, wholly or

partially for or in connection with the specifications.

From the foregoing provisions, it is to be assumed that franchising is covered by the broad

definition of transfer of technology contained in the provisions. On that premise, a

franchisor entering into a contract with ‘Nigeria parties” that includes the use of

trademarks and patented inventions, technical assistance of any description whatsoever

and training of personnel will have to seek registration of the contract from NOTAP.

NOTAP therefore registers all license agreements which involve the use of a foreign

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franchise by Nigerians. During the registration exercise NOTAP ensures that the terms and

conditions including the consideration in the agreement are fair and equitable. In this

regard NOTAP seems to have partially filled the vacuum created by the absence of

antitrust/competition laws in our legal environment as most of the specifications listed in

Section 6(2) (a) -(r) are aimed at protecting Nigerians entering into agreements for

transfer of foreign technology. Consider the following specifications: -

a licensee is not obliged to purchase equipment, tools, or raw materials exclusively from

the licensor(f) ensuring that prices at which a licensor supplies goods and services are

competitive (b) the Nigeria party is free to export its products to other countries(g).

It is within the powers of NOTAP to grant waivers of the specifications under Section 6(3)

of the Act if the Governing Council so decides in the “national interest”. This power of

waiver has in the past been exercised in respect of the Hospitality Industry in relation to

the requirement that Royalties, license fees, and other fees payable by the franchisees to

the franchisors (technology transferees to transferors) do not exceed 5% of net sales.

The international hotel chains group has succeeded in getting NOTAP to revise its rules to

allow in addition to an incentive fee “other payments (to the hotel chains) which are

internationally accepted within applicable hotel chains”. The apparent loose wording of

Section 6 and loopholes for avoidance of the scrutiny of NOTAP have been noted as

minuses for the effectiveness of the Act as the only law offering specific. Guideline no. 17(c)

of the Revised Guidelines on Acquisition of Foreign Technology released in July 2003 by

the Honorable Minister of the Federal Ministry of Science and Technology stipulates the

rates payable for Management Services under the new technology fee structure as follows:

A management fee ranging between 2-5% of profit before tax should apply to

management services except for the management of Hotels by international hotel chains.

However, management services of project where profit is not anticipated during the early

years will attract a fee ranging from 1-2% of net sales during the first three to five years

only.

Hotel Services – A basic fee or lump sum not exceeding 5% of turnover plus an

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incentive fee not exceeding 12% of Gross Operating Profit (GOP) shall be applicable. Other

payments which are internationally accepted within applicable Hotel chains may also be

allowed. Only hotels initially located in the disadvantaged areas will attract the upper

limits of the basic and the incentive fees.

As for the protection for the Nigeria franchisee in foreign franchise arrangements. Section

7 of the Act states that “no payment shall be made in Nigeria to the credit of any person

outside Nigeria by or on the authority of the Federal Ministry of Finance, The Central Bank

of Nigeria or any licensed bank in Nigeria in respect of any payments due under a contract

or agreement mentioned in this Act, unless a certificate of registration issued under this

Act is presented by the party or parties concerned together with a copy of the contract or

agreement certified by the National Office in that behalf”.

The situation here is that the provision represents the main disadvantage stated in the Act

for non-registration with NOTAP by owners of foreign franchises wishing to do business

with Nigerians. There appears to be no sanction for non-registration.

The identified disadvantage is rendered completely irrelevant where the parties choose to

draft their contracts with a requirement that the franchisee remits all royalties to the

franchisor through offshore accounts thereby circumventing the Federal Ministry of

Finance, the Central Bank and other banks in Nigeria and making registration with

NOTAP completely unnecessary.

There is a need to strengthen the NOTAP law to ensure registration compliance by parties

to a franchise arrangement if that is the intention of the makers of the law and fill the gap

created by the non-existence of disclosure legislation in Nigeria. In doing this, it must be

borne in mind that only a few States have attempted to regulate franchising. Such attempts

have been in the area of domestic franchising and not in international franchising which is

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more related to the subject of transfer of technology.

The Nigeria Tourism Development Corporation (NTDC) was established to amongst other

functions, register, classify and grade all hospitality and tourism enterprises,

travel agencies and tour operators in such manner as may be prescribed.

Section 4(2) d Under the NTDC Act state, the Minister with the approval of the President

of the Country was empowered to make regulations in particular requiring the

classification or grading of hotels, restaurants and night clubs and prescribing standards

for their upkeep.

Pursuant to this power the Hospitality and Tourism Establishments (Registration, Grading

and Classification) Regulations came into force as a subsidiary legislation as indicated in

Section 20 of the act.

By the provisions of the regulations, no person shall operate a Hospitality or Tourism

establishment unless he has obtained and is in possession of a current certificate of

registration from the Corporation specifying the name and the premises of the Hospitality

or Tourism Establishment in respect of which the certificate of registration is granted.

Regulation 1(3) of the Act thus refers that parties to a franchise arrangement in the

hospitality industry should take into consideration the requirements of the NTDC Act in

reaching agreements. Under this proviso, the Corporation may refuse to grant a certificate

or may grant same subject to such terms or conditions as it may deem fit to impose in the

circumstances.

Some of the conditions that an applicant for a certificate is required to fulfill are enshrined

in Reg. 1(2) b and c to specifying as follows:-

that the premises in respect of which the application is made is structurally adapted

for use as a Hospitality or Tourism establishment and are in all respects suitable for such

use;

Uninterrupted electricity, portable water, proper fire fighting equipment and

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adequate security should be provided;

Proper provision should be made for storage, preparation and serving of food in

the Hospitality or Tourism Establishment;

The premises in respect of which the application is made complies with the health

requirements for the time being in force in Nigeria and the prescribed minimum standards

e.t.c The Corporation also reserves the power to attach to any certificate of registration

such additional conditions as the Corporation may in its discretion and having regard to all

the circumstances of the case, deem fit.

The Corporation is further empowered to grade every Hospitality or Tourism

Establishment in a class which conforms to the minimum standard with which it is

proposed to be kept and managed considering all facilities available at such Hospitality or

Tourism Establishment. Hotels may be classified and graded as, one, two, three, four and

five stars hotels, whilst a restaurant may be classified and graded as one, two, three, or four

crown restaurant.

The penalties for non-compliance with the provisions of the regulations include fines and

terms of imprisonment. In addition the Corporation can close down any such Hospitality

or Tourism Establishment. It is submitted that such certainty and sanctions for offenders

in the standardization and grading of hospitality infrastructure and delivery were it to exist

in Nigeria, will augur well for the franchising environment with respect to representations

by the contracting parties and description of the business models or concepts being

franchised. Hotel and Restaurant franchise arrangements will have to take into

consideration the NTDC benchmarks in finalizing agreements.

Unfortunately, the NTDC has met with some resistance in its attempt to implement the

provisions of the Act. Much of the opposition has arisen from the fact that Tourism as a

distinct item is not provided for in the Constitution of the Federal Republic of Nigeria

(1999), thereby creating a doubt at to whose responsibility it is between the States and the

Federal Government to regulate Tourism and by extension Hospitality and Tourism

establishments in the Country.

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Whereas such matters pertinent to franchising as Copyright, patents, trademarks,

industrial designs and merchandise marks are clearly listed in the exclusive legislative list

set out in Part 1 of the second schedule to the Constitution in which only the National

Assembly can legislate, Tourism is neither listed in the exclusive nor in the Concurrent

legislative list with the conclusion that it is a residual matter, in which only the States has

legislative competence.

Though items 68 and 46 in the Exclusive Legislative List in Part 1 of the Second Schedule

confirms the power of the National Assembly to legislate on any matter incidental or

supplementary to any matter mentioned elsewhere in the list, there is, it is submitted, no

clarity yet, in the absence of express provisions, as where the power to legislate for

Tourism lies as between the Federal and State Legislative Houses.

The most crucial step in reforming the Tourism Sector will be to give it constitutional

legitimacy by making the necessary amendments and defining the roles of the legislative

houses. And there will be nothing wrong in fashioning a legal framework that is Nigeria to

suit the Government’s avowed quest for increased tourist arrivals in Nigeria and

corresponding fall-out of a proliferation of small fast food business franchises.

All provisions in the Constitution which touch indirectly on the business of Tourism and

Hospitality fall short of stipulating with certainty the legislative competence of the Federal

Government in that regard.

The recent Tourism Master plan which is to point the way forward, perhaps as a result of

the little or non-involvement of experienced Nigeria based Industry Lawyers in its making

regrettably fails to envisage, except for a cursory mention of the splitting of roles between

the federal and State agencies, the legal and regulatory framework necessary for the

realization of the various recommendations and action plans set (NWLR PT264 AT 487;

NNTDMP: 2005).

There is furthermore, the franchise disclosure Laws which also have bearing on the

franchise operations in Nigeria. The question often asked is ‘How does a Solicitor

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rendering his professional services in an environment where the Companies selling

franchises are not open and honest in the description of their offerings evaluate and

actualize the purchase of a franchise for his client?’ This is the question the potential

franchisees legal and financial advisers would have to envisage and perhaps answer in the

unfolding Nigeria franchise environment where no disclosure laws have been passed

requiring franchisors to disclose detailed information about their businesses.

The experience of Nations that have now passed both Federal and State laws requiring

franchisors to disclose detailed information about their businesses before accepting the

franchisee’s money is one the nascent Nigeria franchising sector can learn from.

It was common place for unscrupulous franchisors to take the money of unsuspecting

franchisees and fail to provide the promised services. The Federal Trade Commission

(FTC) Rules which require national compliance in the United States, requires franchisors

to furnish prospective franchisees with information about the franchisor, the franchisor’s

business, and the terms of the franchise agreement through a “Basic Disclosure

Document”, at least ten days before accepting money from the franchisee. These rules

require disclosure of the following information to prospective franchisees:

Identifying information as to franchisor;

Business experience of franchisor’s directors and executive officers;

Business experience of the franchisor;

Litigation history;

Bankruptcy history;

Description of franchise;

Initial funds required to be paid by a franchise;

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Recurring funds required to be paid by the franchisee;

Affiliated persons the franchisee is required or advised to do business with;

Financial arrangements;

Restriction of sales;

Personal participation required of the franchisee in the operation of the franchise;

Termination, cancellation, and renewal of the franchise;

Statistical information concerning the number of franchises (and company-owned outlets);

Site selection;

Training programs;

Public figure involvement in the franchise;

Financial information concerning the franchisor;

A franchisor that provides false information faces both civil and criminal penalties

including compensation in damages, jail, and fines. It is to be noted that the constituent

States in the United States are at liberty, in addition to the adoption of similar rules, to

impose different or more stringent requirements upon the franchisors operating in such

States.

The federal government of Nigeria in its drive to attract foreign investments has eased

restrictions and regulations that impeded growth in this respect. This is an invitation to

international business to come to Nigeria with franchising which has been acknowledged

as the business phenomenon of the decade. Support this with the policy of the Government

to encourage the growth of small and medium enterprises which will find added impetus in

franchising, and there is an urgent need to address the issue of creating the enabling

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environment for a growing and promising franchise sector by passing the necessary

disclosure laws for the regulation of this evolving sector, which today accounts for over

400,000 businesses in the United States of America, a true testament of free enterprise

worthy of adoption in Nigeria and all countries that need to promote investments for rapid

economic development.

Transcorp Hilton Hotel as a case study Hilton Group is a global company operating in the

hospitality and gaming markets with the leading brand names of Hilton and Ladbrokes.

The group intends to enhance shareholder value by exploiting its prime position in these

international markets, both of which are expected to experience significant long-term

growth.

Since Hilton Group plc commenced franchising business in Nigeria, its existence with few

high class hotels is an indication of well being. Even in the face of some misgivings, it is

believed that corporate obligations are fairly maintained.

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8. CONCLUSION

The pillar of effective tourism operation is legislation; hence, the hospitality and tourism

industry stands to gain tremendously from review of the laws impacting on tourism. The

powers conferred on NTDC are not exclusive hence, can not exercise such fully. This factor

needs to be reviewed even in respect of checking actualization of franchise and

management contract hotels.

The inadequacies in the regulatory law are another area that needs to be visited.

Dependence on old laws do not mean well for the industry given the effort to improve on

the quality of services in the country as a tourist destination.

Issues of antitrust matters require reforms to make it more viable. The efforts of the

Federal Ministry of Tourism, Culture and National Orientation to review all the law

regulating the industry is a step towards the right direction. When reviewed, it is believed

the laws will accommodate matters relating to transfer of technology, grading of hotels and

other related agencies including franchise disclosure laws.

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9. RECOMMENDATIONS

To effectively regulate the hotel and the hospitality industry in Nigeria, it is recommended

that:-

The NTDC law should be amended and the Corporation reorganized, while a new

agency, such as a Hotel Boards, or Inspectorate, is created with transfer of function

bordering on licensing of hotels and inspections are handed over to it while NTDC

concentrates on grading and classification.

Concurrent powers of State Governments should also be taken into account, to avoid

clashes between them and the NTDC.

Old laws of the colonial days including those of Nigeria’s related to the industry should

be reviewed to make it more viable for the growth and development of the industry at

large.

Reform of the antitrust matters in the hotel franchise should be ensured in all its

ramifications

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www.WorldThinkTank.net/wttbbs

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Footnotes

*1. ROBERTO BALDI, DISTRIBUTORSHIP, FRANCHISING, AGENCY.1987 Kluwer Law

and Taxation Publishers at page 100 – where the Learned Author states that to speak of

franchising in Italy means referring to franchising as it is implemented in Italy between

Italian contracting parties and not to the types of franchising implemented in Italy by

foreign entities such as Coca Cola, the chain of Hilton Hotels, Hertz etc. At page 97, n.5,

Vaughn’s distinction in “Franchising” 2 ndedn. Lexington Massachusetts, Toronto 1982, is

noted as made up of four distinguishable types: - 1. Between manufacturer and reseller

(petrol stations); 2. Between manufacturer and wholesaler (non alcoholic beverages); 3.

Between wholesaler and reseller (drugstores); 4. Between an owner of a trademark and a

licensee (hotel chains).

*2. Mr. Bigg’s quick service Restaurant business, a division of UACN PLC founded in 1986

with international presence in Accra, Ghana grants it’s to interested/qualified investors in

Nigeria. The Nigeria International Association (NIFA), a company limited by Guarantee

and incorporated on 6thJuly 2004 has as one of its goals: - “To pioneer a new concept in

franchising called cooperative franchising that provides opportunity for small investors to

join together to acquire franchises and to operate them successfully”.

*3. The German doctrine of franchising in Europe is based on a premise of the

arrangement being driven by the entrepreneurial spirit of small business. In Nigeria, the

Small and Medium Scale Enterprises Development Agency (Establishment )Act, No.16 of

2003 has been enacted and given the functions amongst others of: -“providing and

promoting strategic linkages within small and medium scale industries….encouraging and

promoting strategic linkages within small and medium scale industries, and between small

and medium scale industries and large industries;”

To ensure the rapid growth of SMEs the Federal Government of Nigeria has further

instituted a scheme known as ‘Small and Medium Industries Equity Investment Scheme

(SMIES), under which banks operating in Nigeria are required to set aside 10% of their

profit before tax as equity investment in SMEs. 6See STEPHEN BARTH, HOSPITALITY

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LAW, Managing legal issues in the Hospitality industry, (2001) John Wiley & Sons Inc, at

page 64. Singer Corporation was established by Isaac Merrit Singer in 1851.It was renamed

Singer Manufacturing Company in 1865, then the Singer Company in 1963. Originally all

of its manufacturing was done at facilities in New York City, USA

*4. The Mr. Bigg’s franchise acquires and maintains a site bank of potential restaurants

while the franchisee will be responsible for developing and equipping the facility.

18 It started with Holiday Inn in 1974, le Meridien in 1988, Accor in 1994, le Meridien

(again) in 1998 before opting for self management in 2004.

19These include Protea hotel Victoria island, Protea Hotel Oakwood park and Protea

Hotels, Kuramo Waters all in Lagos.

*5. The Nanet Hotels Limited Company founded in 1970 offers hotel development

packages and management services to owners. The West Africa Collection, a new brand of

unique small hotels with properties in Calabar, Lekki, Ikoyi and Offa in Nigeria provides

consistent standards in its package for individual owners’ properties

*6. The principal federal Antitrust laws in the United States are the Sherman Act (15 USCA

SS 1-7) 1890, and the Clayton Act (15 USCA SS 12-27) 1914, at page 104, Blacks law

dictionary 7thEdition. Nigeria is in the process of enacting its first Antitrust/Competition

Law.

*7. The Berne Convention, the Universal Copyright Convention and the Rome Convention

being Conventions dealing with International Copyright recognition and other matters of

an international nature concerning Copyright, all of which Nigeria adheres to.

*8. BEECHAM GROUP V ESSDEE FOOD PRODUCTS NIGERIA LIMITED [1985] PART

11, 3 N.W.L.R PAGE 112 where the Court of Appeal held that non-registration of a contract

registrable under the provisions of the Act does not render such contract invalid or

unenforceable

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*9. Schedule to the 1999 Constitution states that the establishment and regulation of

authorities for the Federation or any part thereof to regulate tourist traffic shall be within

the legislative competence of the National Assembly. This is the only reference to the

regulation of the Tourism Industry in the entire Constitution.

*10. See the authority of ATTORNEY – GENERAL, ABIA STATE V ATTORNEY –

GENERAL, FEDERATION,[2002] 6 N.W.L.R PART 763 , Pg 264 AT 487 where the

Supreme Court of Nigeria held that where the National Assembly has the power under the

Constitution to legislate on a matter, it can only do so within the provisions of the

Constitution. Any legislation which is inconsistent with those provisions is null and void

and inoperative.

*11. A Draft Master Plan report was delivered on 12thDecember 2005 – Consequent upon

the setting up of a Presidential Committee for The Nigeria Tourism development Master

plan by the President. The United Nations World Tourism Organization (UNWTO) and the

United Nations Development Program (UNDP) accepted to part fund and implement the

production of the plan, pursuant to which the former contracted Consultants.

*12. The United States Federal Trade Commission (FTC) is an example of a State authority

that has issued trade regulations entitled “Disclosure requirements and Prohibitions

Concerning Franchising and Business Opportunities Ventures”. 16 C.F.R ss

436 (1988).