More owners are trading full operator control for a franchise model. That trade is not automatically a good one — it depends entirely on what the owner is actually equipped to take on.
For decades, the full-service hotel management agreement — the international operator’s own team running the hotel day to day — was simply the default model for any owner seeking a serious, institutional-grade branded hotel. That is changing. Franchise and manchise structures, in which the owner retains far more direct control, are growing rapidly, driven from both directions: operators increasingly favour the lighter, faster-scaling franchise model over the resource-heavy commitment of full management, and owners are increasingly asking for the control it offers. Before assuming that shift is simply an upgrade, it is worth understanding exactly what an owner gains, and what an owner gives up, in making the move.
Three Models, Not Two
A traditional Hotel Management Agreement sees the operator’s own team run the hotel directly, with the owner in a comparatively passive role, receiving regular reporting and retaining the rights and protections negotiated into the HMA package itself. A Franchise Agreement is a fundamentally different structure — the owner, or an independent third-party management company the owner appoints, runs the hotel under licence to use the operator’s brand, systems, and standards, without the operator’s own staff on site.
Sitting between the two is the Manchise — a structure that begins life as a conventional management agreement, giving the operator full initial control, but with a contractual right for the owner to convert it into a franchise agreement after an initial period, commonly somewhere between three and seven years. This structure exists for a specific reason: many luxury, upper-upscale, and lifestyle brands are simply not available as a straight franchise at all, because operators are unwilling to hand full day-to-day control of their most valuable brand names to an owner or an independent manager from day one. A manchise gives the operator the initial operating control it wants to protect brand standards during the early, most sensitive years of a hotel’s life, while giving the owner a genuine, negotiated path to greater control later — often the only way to combine access to a top-tier brand with an eventual exit from full operator management.
The Case For — Control, and Sometimes, Cost
The single most cited advantage, and the one most owners lead with, is control over the annual operating budget. Under a full HMA, the operator prepares the budget, typically subject to an owner consultation or approval right of varying real strength. Under a franchise, that control shifts substantially to the owner, or to the third-party manager the owner has chosen and can, in principle, replace — a genuinely different power balance than being subject to an operator’s own commercial priorities when setting spending and investment levels.
Fee structure is a related, though more nuanced, advantage. Franchise arrangements typically do not carry the incentive management fee tied to gross operating profit that a full HMA does, since there is no operator profit-share built into the model in the same way. That said, franchise fees are far from free — royalty fees, marketing fund contributions, and loyalty programme charges remain, and at the luxury end these can be substantial: loyalty programme fees alone can represent between 25% and 33% of total franchise fees at the highest brand tiers, reflecting the heavier usage patterns of elite loyalty members. The fee saving relative to a full HMA is real, but it is a difference of degree, not the elimination of cost.
Beyond budget and fees, owners gain materially greater control over staffing — the ability to hire, manage, and if necessary replace the hotel’s own team directly, rather than working through an operator’s own HR structure and internal transfer decisions, an issue we have addressed in detail elsewhere in this series. Decision-making generally moves faster too, without the layers of an operator’s own internal approval processes standing between an owner’s request and its implementation.
The Case Against — Risk Moves With the Control
Every one of these gains comes with a corresponding shift in risk, and it is worth being honest about what that actually means in practice. Full operational responsibility for the hotel now sits with the owner, or with a third-party manager the owner has selected and is directly accountable for choosing well. This is precisely why some Tier 1 operators will only agree to a manchise conversion on condition that the owner appoints an experienced, brand-vetted third-party operator rather than attempting to self-manage — in other words, converting to a franchise rarely means the owner personally runs the hotel; it means the owner takes on direct responsibility for choosing, overseeing, and if necessary replacing whoever does.
Brand standards compliance risk also becomes more direct and immediate. Under a full HMA, an operator has every incentive to maintain its own standards, since its own team is directly responsible. Under a franchise, standards compliance depends entirely on the quality of the owner’s chosen management team, and any slippage carries a more immediate de-flagging risk, since the operator is not present day to day to catch and correct problems before they become serious.
A further, easily overlooked point concerns the conversion terms themselves in a manchise structure. Franchisors will typically want the right to apply whichever form of franchise agreement is current at the time of conversion, rather than the terms that existed when the original management agreement was signed years earlier. An owner who assumes today’s franchise fee structure and terms will still apply at conversion may be in for an unwelcome surprise if the operator’s standard franchise terms have shifted, in the operator’s favour, in the intervening years.
What Owners Should Negotiate in a Manchise Structure Specifically
- Lock in the key commercial terms of the eventual franchise agreement — fee percentages, term length, territorial protections — at the time the manchise is signed, rather than leaving them to be whatever the operator’s then-current standard franchise form happens to say years later.
- Clarify the conversion mechanic precisely — whether the right to convert is automatic and guaranteed after the initial period, or remains subject to the operator’s consent, since the value of a manchise depends heavily on which of these it actually is.
- Establish clear, objective criteria for the third-party manager the owner will be required or permitted to appoint on conversion, including the operator’s approval rights over that choice, so this is not a point of friction discovered only once conversion is already underway.
Not a Free Upgrade — A Different Trade-Off
The growing popularity of franchise and manchise structures reflects a genuine and rational shift in owner preferences, and for the right owner, with the right operational capability or the right third-party manager already in mind, the additional control and reduced fee burden can be a genuinely better outcome than a traditional HMA. But it is not simply more freedom for less money. It is a different allocation of risk and responsibility, and the owners who benefit most from it are the ones who go into the decision with a clear, honest assessment of whether they, or their chosen manager, are genuinely equipped to carry the operational responsibility they are taking on from the brand.
Tim Dobson is the Founding and Managing Partner of Dobson & Partners, a boutique international law firm based in Bangkok, and is ranked by Chambers Asia-Pacific for his hospitality and hotels practice. He has acted for hotel owners across Thailand, Vietnam, Cambodia, Bangladesh and the Maldives in the negotiation of hotel management, franchise and manchise agreements against most of the world’s major international hotel operators.