Under what circumstances must an Embassy Suites franchisee repay the Incentive?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
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.
An Incentive is not a loan, it is a contingent liability. If your franchise terminates before the end of the Term you must pay us the then-current repayable amount of the Incentive. If you transfer your Hotel you must also pay us the then-current repayable amount of the Incentive, unless we permit the transferee to assume your obligations under the Note. In that case we may require the transferee to provide us with such additional security as we deem appropriate. The repayable amount of the Incentive decreases over time. For each year that the Hotel is open, the repayable amount is reduced by an equal annual percentage of the Term. For example, if the franchise has a 10-year Term, the repayable amount is reduced by 1/10th of the original amount annually. If the franchise has a 20-year term, the repayable amount is reduced by 1/20th of the original amount
annually. An Incentive bears no interest. However, if an Incentive becomes repayable and payment is not made in full when due, the outstanding amount is subject to interest at 1.5% per month or the highest rate allowed by law. We may reduce the amount of the Incentive that we disburse to you by any amount that you or your affiliates owe to us or our affiliates, and this will not affect the calculation of the amount repayable to us. We may grant renewals, extensions, modifications, compositions, compromises, releases or discharges of other parties without notice to any guarantor or co-maker. You may not use any portion of the Incentive to make, offer, or authorize any Improper Payment or engage in any act violating any Anti-Corruption Law. If we reasonably believe that you have used the Incentive in violation of any Anti-Corruption Law, you must cooperate with our reasonable requests for information and permit us to inspect all books and records pertaining to your Hotel.
Source: Item 10 — FINANCING (FDD pages 52–53)
What This Means (2025 FDD)
According to Embassy Suites's 2025 Franchise Disclosure Document, an Incentive, which is a financial contribution from Embassy Suites to assist with the development or conversion of a hotel, does not have to be repaid unless specific circumstances occur. These circumstances include the franchise terminating before the end of its term or if the franchisee transfers the hotel to another party. In the event of a transfer, the repayment obligation can be waived if Embassy Suites permits the transferee to assume the original franchisee's obligations under the development incentive note.
The amount repayable decreases over time. For each year the hotel is open, the repayable amount is reduced by an equal annual percentage of the term. For instance, with a 10-year franchise term, the repayable amount decreases by one-tenth annually, while a 20-year term sees a reduction of one-twentieth each year. This reduction is calculated from the original amount of the incentive.
The Incentive itself does not bear interest. However, if repayment is required due to termination or transfer and the payment is not made when due, the outstanding amount is subject to interest. This interest accrues at a rate of 1.5% per month or the highest rate allowed by law. Embassy Suites also retains the right to reduce the initial incentive disbursement by any amount the franchisee or their affiliates owe to Embassy Suites or its affiliates, without affecting the calculation of the repayable amount. Furthermore, the franchisee cannot use any of the incentive to make any improper payment or violate any Anti-Corruption Law. If Embassy Suites believes the franchisee has violated any Anti-Corruption Law, the franchisee must cooperate with reasonable requests for information and allow Embassy Suites to inspect all books and records pertaining to the hotel.