What is the relationship between the litigation described in Item 3 and the potential for development incentives offered to Embassy Suites franchisees as described in Item 10?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
We may, in our sole discretion, offer incentives for new hotels ("Incentives"). An Incentive is a financial contribution that we make to assist with the development or conversion of your Hotel. To receive an Incentive, you and your principals must sign a development incentive note ("Note") in the form attached as Exhibit D-2 when you sign the Franchise Agreement. An Incentive does not have to be repaid, unless the franchise terminates before the end of the Term or a transfer occurs as described below. The Incentive will be disbursed to you within 30 days after the Hotel opens with our consent, as long as: (a) there have been no material adverse changes in the business, legal, litigation, bankruptcy status or finances of you, any guarantors, or the project since we granted approval; (b) you have completed any required PIP; and (c) you have paid the Franchise Application Fee.
What This Means (2025 FDD)
According to Embassy Suites's 2025 Franchise Disclosure Document, the existence of litigation involving a prospective franchisee or its principals can impact their eligibility for development incentives. Specifically, Item 10 states that to receive a development incentive, 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 the approval of the franchise. This means that if a potential Embassy Suites franchisee is involved in a lawsuit or other legal proceeding that the franchisor deems 'materially adverse,' they may not receive the development incentives that Embassy Suites might otherwise offer.
Item 3 of the FDD discloses any litigation that must be disclosed. This includes pending actions and previously settled cases involving Embassy Suites or its affiliates. While the specific lawsuits described in Item 3 do not directly involve prospective franchisees, they provide context for the types of legal issues that Embassy Suites considers important. For example, litigation involving breach of contract, franchise terminations, or antitrust allegations are disclosed.
Therefore, a prospective Embassy Suites franchisee should carefully review Item 3 to understand the types of legal issues that could be considered 'materially adverse' by the franchisor. They should also be prepared to disclose any current or past litigation involving themselves or their business entities during the franchise application process. Failure to do so, or the existence of litigation deemed materially adverse, could jeopardize their eligibility for development incentives from Embassy Suites.