Under what circumstances might Embassy Suites negotiate development incentives?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
ligations | Guaranty | | | | z. Other: Liquidated | 6.4.4.1 and 13.4 | 1.1 | 17 | | Damages | | | |
ITEM 10 FINANCING
Other than the development incentive program described below, we generally do not offer direct or indirect financing for franchisees. We may negotiate these incentives when business circumstances warrant. These programs may be modified, limited, extended or terminated at any time without advance notice or amendment of this Disclosure Document.
We generally require payment of the Franchise Application Fee in a lump sum when you submit your Application, but may occasionally allow payment of the Franchise Application Fee in installments over a limited time period before the start of construction work on the hotel. If we do, we will not charge interest or require a security interest over the installment period or require you to sign a note. You may prepay the unpaid amount of the Franchise Application Fee at any time. If there is a default under the Franchise Agreement, the outstanding balance is accelerated and becomes your immediate obligation, along with any court costs and attorneys' fees for collection.
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.
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.
Source: Item 10 — FINANCING (FDD pages 52–53)
What This Means (2025 FDD)
According to Embassy Suites's 2025 Franchise Disclosure Document, Embassy Suites may negotiate development incentives when business circumstances warrant. These incentives are financial contributions made by Embassy Suites to assist with the development or conversion of a hotel. These incentive programs can be modified, limited, extended, or terminated at any time without prior notice or amendment to the disclosure document.
To receive an incentive, the franchisee and their principals must sign a development incentive note when they sign the Franchise Agreement. The incentive is disbursed within 30 days after the hotel opens with Embassy Suites's consent, provided there are no material adverse changes in the business, legal, litigation, bankruptcy status, or finances of the franchisee, any guarantors, or the project since approval was granted. Additionally, any required Property Improvement Plan (PIP) must be completed, and the Franchise Application Fee must be paid.
Embassy Suites clarifies that an incentive is not a loan but a contingent liability. If the franchise terminates before the end of its term, the franchisee must repay the then-current repayable amount of the incentive. Similarly, if the franchisee transfers the hotel, they must repay the incentive unless Embassy Suites permits the transferee to assume the obligations under the note. The repayable amount decreases over time, with an equal annual percentage reduction based on the term of the franchise. For example, a 10-year term reduces the amount by 1/10th annually, while a 20-year term reduces it by 1/20th annually. The incentive bears no interest unless it becomes repayable and is not paid when due, in which case it is subject to interest at 1.5% per month or the highest rate allowed by law.
Embassy Suites may also offer other types of financing, such as a mezzanine loan or a guaranty of a franchisee's note, lease, or other obligations, in unique or rare circumstances. The specific terms of such financing, including the amount, term, repayment obligations, interest, fees, costs, penalties, security interests, and default provisions, would be based on the unique circumstances and financial situation of the hotel and agreed upon at the time of origination.