Under what circumstances does Embassy Suites charge franchise sales and change of ownership fees?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchise sales and change of ownership fees include application, initiation and other fees that are charged when: (i) new hotels enter our system; (ii) there is a change of ownership of a hotel; or (iii) contracts with hotels already in our system are extended. These fees are typically fixed and collected upfront and are recognized as revenue over the term of the franchise contract. We do not consider this advance consideration to include a significant financing component, since it is used to protect us from the hotel owner failing to adequately complete some or all of its obligations under the contract, including establishing and maintaining the hotel in accordance with our standards.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 97)
What This Means (2025 FDD)
According to Embassy Suites's 2025 Franchise Disclosure Document, franchise sales and change of ownership fees are charged under specific circumstances related to the lifecycle and ownership of a hotel. These fees encompass application, initiation, and other fees.
Specifically, Embassy Suites levies these fees when new hotels are integrated into their system, reflecting the initial investment and setup costs associated with establishing a new franchise location. Additionally, these fees are applicable when there is a change in the ownership of an existing hotel, indicating a transfer of franchise rights and responsibilities to a new owner. Lastly, Embassy Suites charges these fees when contracts with existing hotels in their system are extended, which may cover the costs associated with renewing the franchise agreement and ensuring continued compliance with brand standards.
The FDD states that these fees are typically fixed and collected upfront, and are recognized as revenue over the term of the franchise contract. This upfront collection helps protect Embassy Suites from potential failures by the hotel owner to meet their obligations under the franchise contract, including maintaining the hotel according to the franchisor's standards. This revenue recognition method aligns the fee income with the ongoing services and benefits provided to the franchisee throughout the contract term.