Regarding mezzanine loans for an Embassy Suites franchise, what is the role of the Lender in relation to the Franchisee?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
Facility No. _____
Mezzanine Lender Comfort Letter
Page 3
Franchisee or Lender has cured Franchisee's default during Lender's Cure Period, and Lender commences a UCC sale, foreclosure or other proceeding intended to result in an Acquisition, Lender may exercise the rights under this letter agreement under the terms and timelines outlined in this Subparagraph. If Franchisor has not issued a default notice, Lender's notice to Franchisor of Franchisee's default under the Loan will be deemed to begin Lender's Cure Period and Additional Period. Franchisor acknowledges and agrees that an Acquisition shall not be deemed a sale or lease of the Hotel under the Franchise Agreement, nor a violation of any control or transfer provisions of the Franchise Agreement, and shall not be subject to any right of first refusal or right of first offer contained in the Franchise Agreement.
- (c) Franchisor's Rights to Terminate Franchise Agreement. Notwithstanding any other provision of this letter agreement, Franchisor may terminate the Franchise Agreement if any of the following occur: (i) Franchisee's default or any subsequent default, in the sole opinion of Franchisor, damages the image or reputation of Franchisor or any brand name owned and/or licensed by Hilton Worldwide Holdings Inc., a Delaware corporation, or its subsidiaries or affiliates (collectively, "Hilton"); (ii) Franchisor is required to terminate the Franchise Agreement by court order or action of any trustee in bankruptcy or debtor in possession of the Hotel; or (iii) the Additional Period expires without other arrangements satisfactory to Franchisor in its sole discretion having been entered into between Franchisor and Lender.
- (d) Expiration of Franchise Agreement. Nothing in this letter agreement will extend the Franchise Agreement beyond its stated expiration date.
- (e) Receiver Appointment. If a receiver is appointed to operate the Hotel at the request of Lender, Franchisor may require the receiver to enter into Franchisor's the
Source: Item 23 — RECEIPTS (FDD pages 97–305)
What This Means (2025 FDD)
According to Embassy Suites' 2025 Franchise Disclosure Document, the lender providing a mezzanine loan has specific roles and responsibilities in relation to the franchisee. The franchisee requests that the franchisor provide a letter agreement to the lender. The lender must notify the franchisor when actions are initiated that could result in an acquisition of the franchise. This includes commencement of any action, filing a petition for appointment of a receiver or any action initiated by the Lender that materially impacts possession of the Hotel.
Furthermore, if the lender acquires the franchise, they are deemed to have assumed the rights and obligations of the franchisee under the Franchise Agreement and must fulfill all obligations, including paying fees owed to the franchisor. The lender must also cure any defaults that the franchisee could not address before the acquisition, within a timeframe set by Embassy Suites. The lender is obligated to provide all necessary information to Embassy Suites to ensure they are not a Sanctioned Person and must execute an amendment to the Franchise Agreement documenting the assumption. Failure to do so can result in a default under the Franchise Agreement, potentially leading to termination.
In the event of an assumption, the lender agrees to pay Embassy Suites a processing fee equivalent to the permitted transfer fee outlined in the Franchise Agreement. If the Franchise Agreement does not specify a transfer fee, the processing fee will be $5,500. The franchisee also agrees that Embassy Suites can discuss the status of the hotel and the Franchise Agreement with the lender and is not liable for actions taken or information provided as required by the letter agreement. Any changes to the hotel's management company made by the lender or a receiver before an assumption require Embassy Suites' prior written approval.