REGULATING HOTEL FRANCHISE IN THE

NIGERIA’S HOSPITALITY INDUSTRY

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.

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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

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recommended that, for the industry to forge ahead and become the ultimate tourism
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
Governments and their assemblies have jurisdiction over tourism(CFRN:1999).

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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.

2. BACKGROUND

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

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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
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.

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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.

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
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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.

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

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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
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

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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
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
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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
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
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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
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).

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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).

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.

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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.

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);

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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;

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;

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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

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

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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,
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
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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.

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
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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
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
23 | P a g e
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
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.

24 | P a g e
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

25 | P a g e
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
26 | P a g e
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
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

27 | P a g e
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
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
28 | P a g e
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
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

29 | P a g e
its products and the uniformity that is so important to franchise operations.

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
30 | P a g e
commercial contracts, with an adequate company law, where there are sufficient notions of
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
31 | P a g e
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:

(i) 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.
(ii) Hotel Services – A basic fee or lump sum not exceeding 5% of turnover plus an
incentive fee not exceeding 12% of Gross Operating Profit (GOP) shall be
32 | P a g e
 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
more related to the subject of transfer of technology.

33 | P a g e
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:-

(i) 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;
(ii) Uninterrupted electricity, portable water, proper fire fighting equipment and
adequate security should be provided;
(iii) Proper provision should be made for storage, preparation and serving of food in

34 | P a g e
 the Hospitality or Tourism Establishment;
(iv) 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.

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
35 | P a g e
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
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
36 | P a g e
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;

Recurring funds required to be paid by the franchisee;

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

Financial arrangements;

37 | P a g e
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
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
38 | P a g e
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.

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.

39 | P a g e
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.

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

40 | P a g e
 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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Baldi, R. (1987) Distribution, Franchising, Agency. Kluwer Law and Taxation

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Barth, (2001). Hospitality Law. New York: JW& Sons Inc. P.64.

Black’s Law (1834).Dictionary.7Th ed., P. 668.

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Master Plan.

Websites

www. Unidroit.org/English/guides/1998 franchising/annex3.htm

www.WorldThinkTank.net/wttbbs

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

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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
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

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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

*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

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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).

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