Under what circumstances is Embassy Suites required to compensate a franchisee upon non-renewal?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
THE STATE OF MICHIGAN PROHIBITS CERTAIN UNFAIR PROVISIONS THAT ARE SOMETIMES IN FRANCHISE DOCUMENTS. IF ANY OF THE FOLLOWING PROVISIONS ARE IN THESE FRANCHISE DOCUMENTS, THE PROVISIONS ARE VOID AND CANNOT BE ENFORCED AGAINST YOU.
- (d) A provision that permits a franchisor to refuse to renew a franchise without fairly compensating the franchisee by repurchase or other means for the fair market value at the time of expiration of the franchisee's inventory, supplies, equipment, fixtures and furnishings. Personalized materials which have no value to the franchisor and inventory, supplies, equipment, fixtures and furnishings not reasonably required in the conduct of the franchise business are not subject to compensation. This subsection applies only if (i) the term of the franchise is less than 5 years and (ii) the franchisee is prohibited by the franchise or other agreement from continuing to conduct substantially the same business under another trademark, service mark, trade name, logotype, advertising of other commercial symbol in the same area subsequent to the expiration of the franchise or the franchisee does not receive at least 6 months advance notice of Franchisor's intent not to renew the franchise.
Source: Item 23 — RECEIPTS (FDD pages 97–305)
What This Means (2025 FDD)
According to the 2025 Embassy Suites Franchise Disclosure Document, a Michigan addendum addresses non-renewal compensation under specific conditions. If the franchise term is less than five years and the franchisee is prohibited from operating a similar business in the same area after the franchise expires, or if the franchisee does not receive at least six months' advance notice of non-renewal, Embassy Suites must fairly compensate the franchisee. This compensation covers the fair market value of the franchisee's inventory, supplies, equipment, fixtures, and furnishings at the time of expiration. However, compensation excludes personalized materials with no value to Embassy Suites and items not reasonably required for the franchise business.
This provision is specific to Michigan and aims to protect franchisees from unfair non-renewal practices. It ensures that franchisees who have invested in their business and are restricted from continuing similar operations are compensated for their assets. The requirement for either a longer franchise term (five years or more) or sufficient advance notice (at least six months) provides franchisees with an opportunity to recoup their investment or plan for alternative business ventures.
For prospective Embassy Suites franchisees in Michigan, this addendum offers a degree of financial protection in the event of non-renewal, particularly if the initial franchise term is short. Franchisees should carefully review the terms of the Franchise Agreement and understand the conditions under which compensation is required. It is also important to note the exclusions regarding personalized materials and items not reasonably required for the business, as these will not be subject to compensation.
It is important for potential franchisees to consult with a legal professional to fully understand their rights and obligations under Michigan law and the Franchise Agreement. This will help ensure they are prepared for various scenarios, including the possibility of non-renewal, and can protect their investment in the Embassy Suites franchise.