Under what condition does a Sonesta Simply Suites franchisee have to pay pre-opening damages?
Sonesta_Simply_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
| TYPE OF FEE | AMOUNT | DUE DATE | REMARKS (Note 1) |
|---|---|---|---|
| Default Remedies | You shall reimburse us for all our costs and expenses we incur to remedy your default. | Case by case basis as incurred | Our expenses may include attorneys' fees (including fees for in-house attorneys), court costs and non-legal fees reasonably incurred to protect us, our subsidiaries, or affiliates or to remedy your default. |
| Lost Revenue Damages | Lost Revenue Damages shall be calculated as follows: (1) the lesser of 36 or the number of full and partial calendar months remaining in the Term, multiplied by (2) the aggregate of the Royalty fee and Brand Promotion Fee percentages, multiplied by (3) the average monthly Gross Rooms Revenue of your Hotel during the 36 full calendar months immediately preceding the last date of regular operations of your Hotel; provided, that if, as of such date, your Hotel has not been operating for at least 36 months, the average monthly Gross Rooms Revenue shall be based on the average Gross Rooms Revenue of your Hotel for all full calendar months during the period commencing on the Opening Date and ending as of the last full calendar month immediately preceding the last date of regular operations of your Hotel. | Within 15 days after date of termination | If we terminate the Franchise Agreement because of your default or if you terminate the Franchise Agreement without cause, you must pay us the Lost Revenue Damages as liquidated damages. You also must pay us the Lost Revenue Damages if your Hotel closes due to fire or other casualty, and either of us elects to terminate the Franchise Agreement in connection with such termination. |
Source: Item 6 — OTHER FEES (FDD pages 25–36)
What This Means (2025 FDD)
According to Sonesta Simply Suites's 2025 Franchise Disclosure Document, a franchisee may be required to pay 'Lost Revenue Damages' if the Franchise Agreement is terminated due to the franchisee's default, or if the franchisee terminates the agreement without a valid cause. Additionally, these damages are applicable if the hotel closes because of a fire or other casualty, leading to either party electing to terminate the Franchise Agreement.
The 'Lost Revenue Damages' are calculated based on a formula that considers the lesser of 36 months or the remaining months in the term, multiplied by the combined Royalty fee and Brand Promotion Fee percentages, and then multiplied by the average monthly Gross Rooms Revenue of the hotel. This revenue is determined from the 36 months preceding the last date of regular operations. If the hotel has not been operating for 36 months, the calculation uses the average revenue for all full calendar months from the opening date to the last full month before closure.
These damages serve as liquidated damages to compensate Sonesta Simply Suites for the anticipated revenue loss resulting from the early termination of the agreement. The franchisee is required to pay these damages within 15 days of the termination date. This provision highlights a significant financial risk for franchisees, as they could face substantial costs if they breach the agreement or if unforeseen circumstances lead to the hotel's closure.