Under what circumstances must an Embassy Suites By Hilton franchisee repay the Incentive?
Embassy_Suites_By_Hilton Franchise · 2025 FDDAnswer from 2025 FDD Document
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 By Hilton's 2025 Franchise Disclosure Document, an Incentive, which is a financial contribution from Embassy Suites By Hilton to assist with the development or conversion of a hotel, does not have to be repaid unless certain conditions are met. Specifically, the franchisee must repay the then-current repayable amount of the Incentive if the franchise terminates before the end of its term. Additionally, if the franchisee transfers their hotel, they must also repay the then-current repayable amount of the Incentive, unless Embassy Suites By Hilton permits the transferee to assume the obligations under the development incentive note.
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, while a 20-year term reduces the amount by 1/20th annually. The Incentive itself does not bear interest.
However, if the Incentive becomes repayable and payment is not made in full when due, the outstanding amount is subject to interest at a rate of 1.5% per month, or the highest rate allowed by law. Embassy Suites By Hilton may also reduce the amount of the Incentive disbursed to the franchisee by any amount that the franchisee or their affiliates owe to Embassy Suites By Hilton or its affiliates, without affecting the calculation of the repayable amount. Furthermore, franchisees 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 Embassy Suites By Hilton reasonably believes that the franchisee has violated any Anti-Corruption Law, the franchisee must cooperate with requests for information and permit inspection of all hotel-related books and records.