Under what conditions does the Incentive offered by Embassy Suites By Hilton not have to be repaid?
Embassy_Suites_By_Hilton Franchise · 2025 FDDAnswer from 2025 FDD Document
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. 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 if the franchise continues until the end of its term. The standard procedure involves the franchisee signing a development incentive note when they sign the Franchise Agreement to receive an Incentive.
However, if the franchise terminates before the end of its term, the franchisee must pay Embassy Suites By Hilton the then-current repayable amount of the Incentive. Similarly, if the franchisee transfers their hotel, they must also repay the Incentive, unless Embassy Suites By Hilton permits the transferee to assume the obligations under the note. The repayable amount of the Incentive decreases over time; for each year the hotel is open, the repayable amount is reduced by an equal annual percentage of the term. For example, with a 10-year term, the repayable amount decreases by 1/10th annually, and with a 20-year term, it decreases by 1/20th annually.
This Incentive bears no interest unless it becomes repayable and payment is not made when due, at which point the outstanding amount is subject to interest at 1.5% per month or the highest rate allowed by law. Embassy Suites By Hilton may also reduce the Incentive disbursed by any amount the franchisee or their affiliates owe to Embassy Suites By Hilton or its affiliates, without affecting the calculation of the repayable amount. Franchisees are prohibited from using any portion of the Incentive for any Improper Payment or any act violating any Anti-Corruption Law and must cooperate with reasonable requests for information and permit inspection of books and records if Embassy Suites By Hilton reasonably believes there has been a violation.