What change in equitable ownership of a leasehold interest will cause automatic termination of the Best Western membership?
Best_Western Franchise · 2025 FDDAnswer from 2025 FDD Document
- (A) Except as provided in Article II, Section 7(B) of these Bylaws, a Membership shall automatically terminate on the date of the occurrence of any one of the following events:
- (1) The Best Western Property is leased or subleased;
- (2) A lease of the Best Western Property terminates;
- (3) If the Best Western Property is not leased, a change occurs of 50% or more of the equitable ownership of the Best Western Property within a 12-month period;
- (4) A change occurs of 50% or more of the equitable ownership of a leasehold interest within a 12-month period;
- (5) If the Best Western Property is not leased, a change occurs of 50% or more of the equitable ownership of the entity or entities owning the Best Western Property within a 12-month period;
- (6) A change occurs of 50% or more of the equitable ownership of the entity or entities leasing the Best Western Property within a 12-month period.
- (7) A term or condition is not met, after the Board, having provided the Member with an opportunity for a hearing, has found grounds exist for cancellation of the Membership and the Member has been granted a conditional extension in lieu of cancellation.
- (8) A Member or Member with Conditions fails to maintain and provide proof of insurance coverage as required by the Rules and Regulations.
- (9) A term or condition is not met by a Member whose Membership Application was approved by the Board with specific requirements and time frames for compliance prior to final approval of the Membership and has been advised that failure to meet any of these requirements will be grounds for automatic cancellation.
Except for the events specified in Paragraphs (A)(7), (8) and (9) of this Article II, Section 7, a Member may request an opportunity to be heard by submitting to the Board, in writing, at least 30 days prior to the effective date of the occurrence, the reasons,
in specific detail, why the automatic termination provisions are inapplicable and the termination should not occur. The Board in its sole discretion may request the Member appear in person and provide oral testimony. The Board shall have sole discretion to determine whether an event of automatic termination will or has occurred.
Source: Item 23 — Receipts (FDD pages 108–413)
What This Means (2025 FDD)
According to Best Western's 2025 Franchise Disclosure Document, a change of 50% or more of the equitable ownership of a leasehold interest within a 12-month period will result in the automatic termination of a Best Western membership. This provision is outlined in Article II, Section 7(A)(4) of the Best Western Bylaws. This means that if a franchisee who leases their Best Western property undergoes a significant change in ownership structure, such as selling or transferring more than half of their leasehold interest, their membership with Best Western will be automatically terminated.
This automatic termination can have significant implications for a Best Western franchisee. It underscores the importance of maintaining stable ownership and control over the leasehold interest. Franchisees need to be aware of this provision when considering any changes to their ownership structure, as it could lead to an unexpected and immediate loss of their Best Western affiliation. The franchisee would lose access to the Best Western brand, reservation system, and other membership benefits.
However, Article II, Section 7 outlines certain exceptions to this automatic termination rule. These exceptions include bona fide financing transactions, changes in legal form of ownership without actual change in control, transfers to family members, transfers to a bona fide lender due to default, changes in stock ownership of a publicly traded corporation, and issuance of new stock in a corporation or new limited partnership interest prior to commencement of operation as a Best Western Property. Franchisees should carefully review these exceptions and consult with Best Western to determine if their specific situation qualifies for an exemption.
It is also important to note that Best Western's Board has the sole discretion to determine whether an event of automatic termination will or has occurred. Therefore, franchisees should maintain open communication with Best Western and seek clarification on any potential ownership changes to avoid unintended consequences. Understanding these provisions is crucial for maintaining a Best Western membership and ensuring the continued operation of the franchised property.