Concerns hospitality franchise agreements.

S2920

SENATE, No. 2920

STATE OF NEW JERSEY

222nd LEGISLATURE

�

PRE-FILED FOR INTRODUCTION IN THE 2026 SESSION

Sponsored by:

Senator RAJ MUKHERJI

District 32 (Hudson)

Co-Sponsored by:

Senator Gopal

SYNOPSIS

���� Concerns hospitality franchise agreements.

CURRENT VERSION OF TEXT

���� Introduced Pending Technical Review by Legislative
Counsel.

��

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, or where the franchisee owner, partner, member, investor, or
guarantor is a resident of New Jersey and where more than 20 percent of the
franchisee�s gross sales are intended to be or derived from that franchise.

���� c.��� For the purposes of this
act, �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.��� Impose or enforce any
restriction on the owner, officers, or employees of the franchisee that limits
their employment, ownership, or participation in the operation of any business
or activity for more than six months duration after termination, cancellation,
or non-renewal in a location outside the county in which the hospitality
franchise is located;

���� b.��� Require or attempt to
require a franchisee to relocate a hospitality franchise or to make any capital
investment over $25,000 more than once every five years, unless the franchisor
can demonstrate that the franchisee, in the ordinary course of business, will
be able to recover the value of that investment over the remaining term of the
franchise agreement;

���� c.��� Receive any rebate,
commission, kickback, services, other consideration or anything of value from
any vendor that sells goods or services to a franchisee of the hospitality
franchisor unless the consideration is fully disclosed to the franchisee and
promptly turned over to the franchisee;

���� d.��� Require a franchisee, as
a condition for the approval of a renewal or transfer of a hospitality
franchise, to assent to a general release from liability for the franchisor
unless the franchisor provides to the franchisee a reciprocal general release;

���� e.��� 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;

���� f.���� 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;

���� g.��� 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;

���� h.��� 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 the franchisee�s written agreement to pay the fee or charge;

���� i.���� Impose any fee or
charge upon a hospitality franchisee for or on account of published guest
reviews or criticisms of a franchisee, including:

���� (1)� a franchisee�s failure to
enroll a minimum number of guests prescribed by the franchisor in a
franchisor�s loyalty program; or

���� (2)� a franchisor�s services
in resolving guest complaints to the franchisor about a franchisee, except that
a refund provided by the franchisor to a complaining guest may be charged back
to the franchisee;

���� j.���� Sell points or credits
in a hospitality franchisor�s loyalty program 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;

���� k.��� Suspend, restrict,
stop-sell, or prevent access to franchise services, including but not limited
to property management systems, online listings, phone call sales, use of
approved marks, or any other specified services included in the franchise
agreement or provided in the usual course by a franchisor to a franchisee; or

���� l.���� Impose any costs, fees,
charges, or penalties for a franchisee�s alleged failure to perform, including
but not limited to: re-inspection fees, inspection failure fees, loyalty sign
up fees, rate parity violation fees, customer care fees, conference attendance
fees, retraining fees, and loyalty program fees.

���� 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.

STATEMENT

���� This bill creates provisions
regarding hospitality franchises in the State of New Jersey, supplementing
P.L.1971, c.356, the �Franchise Practices Act� (C.56:10-1 et seq.). These
provisions apply to hospitality franchises where the franchisee is required to
maintain a place of business within the State, or where the franchise owner,
partner, member, investor, or guarantor is a resident of New Jersey and where
over 20 percent of the franchisee�s gross sales are derived from their New
Jersey franchise. The bill also ensures that franchises, as defined in 16 CFR
436 and 437, if they are hospitality franchises, will be considered
�merchandise� under the consumer fraud act, P.L.1960, c.39 (C.56:8-1 et seq.).

���� The bill defines �hospitality
franchise� as 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.

���� The bill contains a list of
hospitality franchisor activities that will be considered a violation of the
�Franchise Practices Act� (C.56:10-1 et seq.). The bill makes it a violation
for a hospitality franchisor to impose a restriction on the owner, officers, or
employees of a franchise that limits their employment, ownership, or
participation in any business activity for more than six months following their
termination, cancellation, or non-renewal at the franchise in a county other
than that in which the franchise was located.

���� The bill makes it a violation
for a hospitality franchisor to require a franchisee to relocate or make any
capital investment in excess of $25,000 more than once every five years, unless
the franchisor can demonstrate that the franchisee will be able to recover the
value of the investment over the remaining term of the franchise. The bill
prohibits franchisors from receiving kickbacks, rebates, or other consideration
from vendors that franchisees must patronize, unless the benefit is first
disclosed to the franchisee and unless the benefit is turned over to the
franchisee. The bill ensures that if the franchisee gives the hospitality
franchisor a general release of claims upon renewal or transfer of the
franchise, then the franchisee will receive a reciprocal release from the
franchisor.

���� The bill makes it a violation
for the hospitality franchisor to require a franchisee to purchase goods or
services from suppliers designated by the franchisor if goods or services
meeting the franchisor�s reasonable specifications and standards are available
from other sources. The bill also calls for the franchisor to license a
third-party supplier to use its trademarks for franchisee supplies in the case
of supplies that carry the mark. The bill ensures that the hospitality
franchisor will not compete with the franchisee in an exclusive or protected
territory under a different name or mark.

���� The bill prohibits the
practice of unilaterally changing the material terms of the franchise agreement
by implementing changes in the operations manual. This provision makes it clear
that the hospitality franchisor may not materially change the contract with the
franchisee by altering the manual. The bill prohibits the franchisor from
imposing any new fees on the franchisee unless the fees were disclosed in a
franchise disclosure document. The bill makes it a violation for a hospitality
franchisor to impose a fee or charge on the franchisee as the result of a
guest�s published criticism of the franchisee, a franchisor�s resolution of
complaints related to the franchisee, or the franchisee�s failure to enroll a
minimum number of guests.

���� The bill prohibits a
hospitality franchisor from selling points in a loyalty program to guests to
use at a franchisee�s facility without compensating the franchisee for lost
revenue. The bill would restrict the hospitality franchisor�s ability to deny a
franchisee access to necessary franchisor programs, including but not limited
to property management systems, online listings, phone sales or use of approved
marks. The bill prohibits a hospitality franchisor from imposing fees based on
a franchisee�s alleged failure to perform, including but not limited to
re-inspection fees, inspection failure fees, loyalty sign-up fees, loyalty
program fees, and others.

���� Finally, the bill specifies
that a violation of any of these provisions, or any of the provisions of
section 7 of P.L.1971, c.356 (C.56:10-7), shall not constitute good cause for a
franchisee�s termination.