Does the Embassy Suites franchisee's indemnification obligation extend to claims arising from a previous owner's actions if the franchisee acquired the Hotel in a Change of Ownership Transfer?

According to Embassy Suites's 2025 Franchise Disclosure Document, a franchisee's indemnification obligations do extend to certain claims arising from a previous owner's actions if the franchisee acquired the hotel through a Change of Ownership Transfer. Specifically, the franchisee must indemnify Embassy Suites and its affiliates against any inquiry, investigation, suit, action, or proceeding arising out of or in connection with any fees or costs charged to patrons or guests by the previous owner (the transferor) before the franchisee acquired ownership of the hotel. This obligation is part of a broader set of indemnification responsibilities that the franchisee assumes under the franchise agreement. However, the franchisee does not have to indemnify an Indemnified Party to the extent damages are adjudged by a final, non-appealable judgment of a court of competent jurisdiction to have been solely the result of the gross negligence or willful misconduct of that Indemnified Party.

This means that if a new Embassy Suites franchisee takes over an existing hotel, they could be held responsible for legal or financial issues stemming from the previous owner's operations. This could include disputes over charges, fees, or other costs incurred by guests before the transfer of ownership. It is important to note that this indemnification extends to inquiries, investigations, suits, and other legal proceedings, which can be costly and time-consuming, even if the franchisee is ultimately not found liable.

However, the franchisee is not liable if the damages are solely the result of gross negligence or willful misconduct of the Indemnified Party. This exception may not apply if the claims are asserted against Embassy Suites or any other Indemnified Party on the basis of theories of imputed or secondary liability, such as vicarious liability, agency, or apparent agency, or their failure to compel compliance with the provisions of the Agreement.

Prospective Embassy Suites franchisees should carefully review the franchise agreement and conduct thorough due diligence before acquiring an existing hotel through a Change of Ownership Transfer. This due diligence should include a review of the previous owner's financial and legal records to identify any potential liabilities that the franchisee could inherit. Understanding the scope of the indemnification obligation is crucial for assessing the risks and potential costs associated with acquiring an existing Embassy Suites franchise.