Under the Embassy Suites Franchise Agreement, what is 'Assumption' in the context of a lender acquiring the franchisee's rights and obligations?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
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Franchisee or Lender has cured Franchisee's default during Lender's Cure Period, and Lender commences a UCC sale, foreclosure or other proceeding intended to result in an Acquisition, Lender may exercise the rights under this letter agreement under the terms and timelines outlined in this Subparagraph. If Franchisor has not issued a default notice, Lender's notice to Franchisor of Franchisee's default under the Loan will be deemed to begin Lender's Cure Period and Additional Period. Franchisor acknowledges and agrees that an Acquisition shall not be deemed a sale or lease of the Hotel under the Franchise Agreement, nor a violation of any control or transfer provisions of the Franchise Agreement, and shall not be subject to any right of first refusal or right of first offer contained in the Franchise Agreement.
- (c) Franchisor's Rights to Terminate Franchise Agreement. Notwithstanding any other provision of this letter agreement, Franchisor may terminate the Franchise Agreement if any of the following occur: (i) Franchisee's default or any subsequent default, in the sole opinion of Franchisor, damages the image or reputation of Franchisor or any brand name owned and/or licensed by Hilton Worldwide Holdings Inc., a Delaware corporation, or its subsidiaries or affiliates (collectively, "Hilton"); (ii) Franchisor is required to terminate the Franchise Agreement by court order or action of any trustee in bankruptcy or debtor in possession of the Hotel; or (iii) the Additional Period expires without other arrangements satisfactory to Franchisor in its sole discretion having been entered into between Franchisor and Lender.
- (d) Expiration of Franchise Agreement. Nothing in this letter agreement will extend the Franchise Agreement beyond its stated expiration date.
- (e) Receiver Appointment. If a receiver is appointed to operate the Hotel at the request of Lender, Franchisor may require the receiver to enter into Franchisor's the
Source: Item 23 — RECEIPTS (FDD pages 97–305)
What This Means (2025 FDD)
According to the 2025 Embassy Suites Franchise Disclosure Document, "Assumption" refers to a lender taking on the responsibilities and entitlements of the franchisee under the Franchise Agreement, specifically when the lender gains possession or ownership of the hotel due to an acquisition. This means the lender is obligated to fulfill all the franchisee's duties from the acquisition date forward, including paying any owed fees to Embassy Suites.
In the event of an Assumption, the lender must also address any outstanding defaults that they couldn't resolve before the acquisition. The franchisor will determine the timeframe for curing these defaults, considering the nature of the default and the hotel's condition. Additionally, the lender is required to provide all necessary information to Embassy Suites to confirm they are not a Sanctioned Person. Upon confirmation, Embassy Suites will provide its standard assumption agreement, which the lender must then execute and return within ten business days.
It's important to note that Embassy Suites can impose renovation requirements during the Assumption, but these cannot exceed what would have been required if the original franchisee remained. Instead of a transfer or application fee, the lender will pay Embassy Suites a processing fee of $5,500. Failure by the lender to comply with these requirements or to execute and deliver the assumption agreement in a timely manner may result in a default under the Franchise Agreement, potentially leading to its termination.
Furthermore, the lender is obligated to notify Embassy Suites of any actions that could lead to an Acquisition, such as commencing an action that may result in an Acquisition or filing a petition for appointment of a receiver. This ensures Embassy Suites is kept informed of any changes in the hotel's ownership or management, allowing them to protect their brand standards and interests.