What are The Standardx franchisee's obligations if an examination reveals an understatement of revenue?
The_Standardx Franchise · 2025 FDDAnswer from 2025 FDD Document
If any examination discloses an understatement of the revenue, Franchisee agrees to pay Hyatt, within fifteen (15) days after receiving the examination report, the Royalty Fees, System Services Charges and other fees due on the amount of the understatement, together with the late fee and interest in accordance with Section 6.5.
Furthermore, if Hyatt determines that an examination is
necessary due to Franchisee's failure to furnish reports or other information when required, or if Hyatt's examination reveals a Royalty Fee or System Services Charge underpayment of three percent (3%) or more of the total amount owed during any six (6)-month period, or that Franchisee willfully understated the Hotel's revenue, Franchisee agrees to reimburse Hyatt for the costs of the examination, including out-of-pocket costs and compensation of Hyatt's employees. These remedies are in addition to Hyatt's other remedies and rights under this Agreement and applicable law.
Source: Item 18 — OTHER INCOME (LOSS), NET (FDD pages 187–399)
What This Means (2025 FDD)
According to The Standardx's 2025 Franchise Disclosure Document, if an examination reveals an understatement of revenue, the franchisee is obligated to pay The Standardx the Royalty Fees, System Services Charges, and other fees due on the understated amount. This payment must be made within fifteen (15) days of receiving the examination report, and it must include any applicable late fees and interest.
Furthermore, The Standardx franchisee may be responsible for reimbursing The Standardx for the costs of the examination itself under certain conditions. Specifically, if The Standardx determines the examination was necessary due to the franchisee's failure to provide required reports or information, or if the examination reveals an underpayment of Royalty Fees or System Services Charges of three percent (3%) or more of the total amount owed during any six (6)-month period, the franchisee will have to cover the examination costs. This also applies if the franchisee willfully understated the hotel's revenue.
The reimbursement for examination costs includes both out-of-pocket expenses and compensation for The Standardx's employees involved in the examination. It's important to note that these remedies are in addition to any other rights and remedies The Standardx has under the Franchise Agreement or applicable law. This means that underreporting revenue can lead to multiple financial penalties and legal consequences for The Standardx franchisee.
This clause highlights the importance of accurate financial reporting and compliance with the franchise agreement. Franchisees should maintain meticulous records and ensure timely submission of all required reports to avoid triggering an audit and potential penalties. The threshold of three percent (3%) underpayment is relatively low, so franchisees need to be vigilant in their accounting practices.