What is the Embassy Suites franchisee's obligation if an audit reveals an underpayment?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
- 10.3.2 If any inspection or audit reveals that you understated or underpaid any payment due to us, you will promptly pay to us the deficiency, plus interest from the date each payment was due until paid at the interest rate set forth in Section 16.15 of this Agreement.
- 10.3.3 If the audit or inspection reveals that the underpayment is willful, or is for five percent (5%) or more of the total amount owed for the period being inspected, you will also reimburse us for all inspection and audit costs, including reasonable travel, lodging, meals, salaries and other expenses of the inspecting or auditing personnel. Our acceptance of your payment of any deficiency will not waive any rights we may have as a result of your breach, including our right to terminate this Agreement. If the audit discloses an overpayment, we will credit this overpayment against your future payments due under this Agreement, without interest, or, if no future payments are due under this Agreement, we will promptly pay you the amount of the overpayment without interest.
Source: Item 22 — CONTRACTS (FDD page 97)
What This Means (2025 FDD)
According to Embassy Suites's 2025 Franchise Disclosure Document, if an inspection or audit reveals that a franchisee has underpaid any amount due to Embassy Suites, the franchisee is required to promptly pay the deficiency. This payment will also include interest calculated from the date the original payment was due until the date it is actually paid. The interest rate applied will be as specified in Section 16.15 of the Franchise Agreement. This ensures that Embassy Suites is compensated for the time value of money on the underpaid amount.
Furthermore, if the audit reveals that the underpayment was willful or amounts to five percent or more of the total amount owed for the period being inspected, the franchisee will also be responsible for reimbursing Embassy Suites for all costs associated with the inspection and audit. These costs include reasonable expenses such as travel, lodging, meals, salaries, and other expenses incurred by the inspecting or auditing personnel. This provision serves as a deterrent against intentional underreporting and ensures that Embassy Suites does not bear the financial burden of uncovering significant discrepancies.
It is important to note that Embassy Suites's acceptance of the franchisee's payment of any deficiency does not waive any other rights that Embassy Suites may have as a result of the breach. This includes the right to terminate the Franchise Agreement. Conversely, if the audit reveals an overpayment by the franchisee, Embassy Suites will credit this overpayment against the franchisee's future payments due under the agreement, without interest. If no future payments are due, Embassy Suites will promptly pay the amount of the overpayment to the franchisee, also without interest. This ensures fair treatment of the franchisee in case of an overpayment.