What conditions must be met for the principal amount of the Embassy Suites Development Incentive Note to be disbursed?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
The principal amount of this Note will be disbursed by Holder to Maker, and Maker will become subject to the obligation to repay or discharge this Note, when and if (a): Maker opens the Hotel with our consent; (b) there have been no material adverse changes in the business, legal, litigation, bankruptcy status or finances of the Maker, any guarantors, or the project since approval; (c) Maker has completed any PIP; and (d) Maker has paid the Franchise Application Fee. If the Franchise Agreement terminates before the Hotel opens and Holder has not disbursed the principal amount of this Note to Maker, then this Note will be deemed discharged and neither party will have any further obligation to the other under this Note. On each anniversary of the Hotel's Opening Date, one-twentieth (1/20th) [UPDATE IF FA TERM IS NOT 20 YEARS] of the original principal amount will be forgiven without payment. Maker's obligation to repay the principal of this Note will cease and this Note will automatically be canceled and discharged when and if the principal is completely forgiven or repaid in accordance with these terms. For the purposes of calculating the portion of the principal amount of this Note that is forgiven each year, Holder will be deemed to have disbursed the full principal amount regardless of whether or not Holder has set off any amounts from such principal amount pursuant to the Franchise Agreement prior to disbursement to Maker.
Source: Item 22 — CONTRACTS (FDD page 97)
What This Means (2025 FDD)
According to the 2025 Embassy Suites Franchise Disclosure Document, the principal amount of the Development Incentive Note will be disbursed to the Maker (franchisee) when specific conditions are met. Embassy Suites will disburse the funds only if the franchisee opens the hotel with their consent. Additionally, there must be no material adverse changes in the business, legal, litigation, bankruptcy status, or finances of the franchisee, any guarantors, or the project since its approval. The franchisee must also complete any Property Improvement Plan (PIP) required by Embassy Suites. Finally, the franchisee must have paid the Franchise Application Fee.
If the Franchise Agreement terminates before the hotel opens and Embassy Suites has not disbursed the principal amount of the note, the note is considered discharged, and neither party has further obligations. On each anniversary of the hotel's opening date, one-twentieth of the original principal amount will be forgiven without payment, assuming a 20-year term. The franchisee's obligation to repay the principal ceases when the principal is completely forgiven or repaid according to the terms of the note. For calculating the forgiven amount each year, Embassy Suites is considered to have disbursed the full principal amount, regardless of any set-offs from the principal amount under the Franchise Agreement before disbursement.
This Development Incentive Note provides a financial incentive for franchisees to develop and open Embassy Suites hotels. The conditions for disbursement protect Embassy Suites by ensuring the franchisee is in good standing and the project is viable before funds are released. The forgiveness of the principal amount over time acts as an ongoing incentive for the franchisee to maintain the hotel and adhere to the franchise agreement. Prospective franchisees should carefully review the terms of the Development Incentive Note and understand the conditions for disbursement and forgiveness, as well as the implications of early termination or transfer of the franchise agreement.