What happens if an audit of an Embassy Suites franchise reveals an overpayment?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
- 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 an overpayment, Embassy Suites will handle it in one of two ways. If the franchisee has future payments due under the Franchise Agreement, Embassy Suites will credit the overpayment against those future payments; this credit will not accrue interest. If there are no future payments due, Embassy Suites will promptly pay the franchisee the amount of the overpayment, also without interest.
This policy is fairly standard in franchising. Franchisors often conduct audits to ensure accurate reporting of revenues, which directly impacts royalty payments. The provision for handling overpayments ensures that franchisees are made whole, although the lack of interest on the overpayment is worth noting. Franchisees should maintain meticulous records to minimize the risk of errors that could lead to either underpayments or overpayments.
It is important for prospective Embassy Suites franchisees to understand the audit process and their rights in case of discrepancies. While the FDD outlines the general procedure, franchisees should seek clarification from Embassy Suites regarding the specific timelines for resolving overpayment issues and the documentation required to support their claims. Understanding these details can help franchisees protect their financial interests and maintain a positive working relationship with the franchisor.