ENVIRONMENTAL INDEMNITY AGREEMENT

EXHIBIT 10.3

ENVIRONMENTAL INDEMNITY AGREEMENT

THIS ENVIRONMENTAL INDEMNITY AGREEMENT (this “Agreement”), dated as of May 5, 2005, is made by LASALLE BANK NATIONAL ASSOCIATION, successor trustee to AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a national banking association, not personally but solely as trustee under trust agreement dated July 26, 1977 and known as Trust No. 40935 and LASALLE BANK NATIONAL ASSOCIATION, successor trustee to AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a national banking association, as successor trustee to First Bank, N.A., as successor trustee to National Boulevard Bank of Chicago, not personally but solely as trustee under trust agreement dated September 27, 1976 and known as Trust No. 5602, (collectively, the “Fee Holder”) and CONTINENTAL TOWERS ASSOCIATES–I, L.P., an Illinois limited partnership (“Beneficial Interest Holder”, the Fee Holder and the Beneficial Interest Holder are collectively, together with their respective permitted successors and assigns, referred to herein as “Borrower”), and PRIME GROUP REALTY, L.P., a Delaware limited partnership (“Guarantor,” and, together with Borrower, the “Indemnitor”) for the benefit of SUNAMERICA LIFE INSURANCE COMPANY, an Arizona corporation (“Lender”), and the other “Indemnitees,” as hereinafter defined.

RECITALS

A.         Lender has agreed to make a loan to Borrower in the amount of $75,000,000.00 (the “Loan”) pursuant to a Loan Agreement, of even date herewith, by and between Borrower and Lender (the “Loan Agreement”). The Loan is to be evidenced by a Promissory Note of even date herewith made by Borrower to the order of Lender (the “Note”) and secured by certain Mortgages for the benefit of Lender encumbering the Property (as those terms are defined in the Loan Agreement) and guaranteed by a Guaranty Agreement of even date herewith by Guarantor for the benefit of Lender (the “Guaranty”). All capitalized terms used herein without definition shall have the meanings given to such terms in the Loan Agreement.

B.         Borrower is the owner of the Property as described in the Loan Agreement.

C.         As a condition precedent to making the Loan, Lender requires that Indemnitor enter into this Agreement, whose covenants and obligations are independent of and in addition to Borrower’s obligations under the Note, Loan Agreement, Mortgages and the other documents governing, evidencing and securing the Loan, and are independent of and in addition to Guarantor’s obligations under the Guaranty.

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Indemnitor hereby represents, warrants and covenants to Lender and Lender’s officers, directors, employees, agents, affiliates, successors and assigns (collectively, the “Indemnitees”) as follows:

Section 1.        Representations and Warranties. Indemnitor represents and warrants to the Indemnitees that:

(a)        to the best of Indemnitor’s knowledge, the Property is not in violation of any legal requirement pertaining to or imposing liability or standards of conduct concerning environmental regulation, contamination or clean-up, including the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, the Emergency Planning and Community Right-to-Know Act of 1986, the Hazardous Substances Transportation Act, the Solid Waste Disposal Act, the Clean Water Act, the Clean Air Act, the Toxic Substance Control Act, the Safe Drinking Water Act, the Occupational Safety and Health Act, any state super-lien and environmental clean-up statutes (including with respect to Toxic Mold), any local law requiring related permits and licenses and all amendments to and regulations in respect of the foregoing laws (collectively, “Environmental Laws”);

(b)        to the best of Indemnitor’s knowledge, the Property is not subject to any private or governmental lien or judicial or administrative notice or action or inquiry, investigation or claim relating to hazardous, toxic and/or dangerous substances, toxic mold or fungus of a type that may pose a risk to human health or the environment or would have a material adverse impact on the value of the Property (“Toxic Mold”) or any other substances or materials which are included under or regulated by Environmental Laws (collectively, “Hazardous Substances”);

(c)        to the best of Indemnitor’s knowledge, after due inquiry, no Hazardous Substances are or have been (including the period prior to Borrower’s acquisition of the Property), discharged, generated, treated, disposed of or stored on, incorporated in, or removed or transported from any Property other than in compliance with all Environmental Laws;

(d)        to the best of Indemnitor’s knowledge, after due inquiry, no Toxic Mold is on or about any Property which requires remediation under Environmental Laws;

(e)        to the best of Indemnitor’s knowledge, after due inquiry, no underground storage tanks exist on the Property and the Property has never been used as a landfill;

(f)         there have been no environmental investigations, studies, audits, reviews or other analyses conducted by or on behalf of Guarantor which has not been disclosed to Lender;

(g)        Beneficial Interest Holder (i) is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Illinois, (ii) has the power and authority to own its property and assets and to transact the business in which it is engaged and (iii) is duly qualified and is in good standing in each jurisdiction in which it owns or leases property or in which failure to be duly qualified and in good standing would have an adverse effect on its business, operations, property or financial condition;

(h)        Borrower has the power to execute, deliver and perform the terms and provisions of this Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement;

(i)         Indemnitor has duly executed and delivered this Agreement, and this Agreement constitutes its legal, valid and binding obligation enforceable against Indemnitor in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization and other laws affecting creditors’ rights generally and by principles of equity;

(j)         neither the execution, delivery or performance by Indemnitor of this Agreement, nor compliance by it with the terms and provisions hereof, will (i) contravene any provision of any law, statute, rule or regulation or any order, writ, injunction or decree of any court or governmental instrumentality, (ii) result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any lien upon any of its property or assets pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement, loan agreement or any other agreement, contract or instrument to which it is a party or by which it or any of its property or assets is bound or to which it may be subject, or (iii) violate any provision of any Borrower’s certificate of limited partnership, partnership agreement, or other organizational documents;

(k)        no order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with, the execution, delivery and performance by Indemnitor of this Agreement or the legality, validity, binding effect or enforceability of this Agreement; and

(l)         to the best of Borrower’s knowledge, Borrower is in compliance in all-material respects with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by all governmental bodies in respect of the conduct of its business and the ownership of its property.

(a)        Indemnitor shall (i) keep the Property in compliance with all Environmental Laws, (ii) promptly notify Lender if it becomes aware that (A) any Hazardous Substance is on or near any Property in violation of Environmental Laws, (B) the Property is in violation of any Environmental Laws and (iii) remove such Hazardous Substances and/or cure such violations and/or remove such threats, as applicable, as required under applicable law promptly after Indemnitor becomes aware of same, at Indemnitor’s sole expense. Nothing herein shall prevent Indemnitor from recovering such expenses from any other party that may be liable for such removal or cure.

(b)        Indemnitor shall give prompt written notice to Lender of (i) any proceeding or inquiry by any party with respect to the presence of any Hazardous Substance on, under, from or about any Property, (ii) all claims made or threatened by any third party against Indemnitor or any Property or any party occupying any Property relating to any loss or injury

resulting from any Hazardous Substance, and (iii) Indemnitor’s discovery of any occurrence or condition on any real property adjoining or in the vicinity of any Property that could cause such Property to be subject to any investigation or cleanup pursuant to any Environmental Law. Upon becoming aware of the presence of Toxic Mold at the Property, Indemnitor shall (i) perform or cause to be performed all acts required by law for the remediation of any Toxic Mold (including taking any action necessary to clean and disinfect any portions of such Property affected by Toxic Mold, including providing any necessary moisture control systems at the affected Property, if and to the extent required), and (ii) provide evidence reasonably satisfactory to Lender of the foregoing. Indemnitor shall permit Lender to join and participate in, as a party if it so elects, any legal or administrative proceedings or other actions initiated with respect to any Property in connection with any Environmental Law or Hazardous Substance, and Indemnitor shall pay all reasonable attorneys’ fees and disbursements incurred by Lender in connection therewith.

(c)        Upon Lender’s request, which request shall only be made if Lender in its good faith judgment determines that reasonable cause exists for the performance of such environmental inspection or audit, Indemnitor shall provide an inspection or audit of the Property prepared by a licensed hydrogeologist, licensed environmental engineer or qualified environmental consulting firm approved by Lender in its reasonable discretion assessing the presence or absence of Hazardous Substances on, in or near such Property. The cost and expense of such audit or inspection shall be paid by Indemnitor. Such inspections and audit may include soil borings and ground water monitoring. If Indemnitor fails to provide any such inspection or audit within 45 days after such request, Lender may order same, and Indemnitor hereby grants to Lender and its employees and agents access to the Property and a license to undertake such inspection or audit.

(d)        If any environmental site assessment report prepared in connection with such inspection or audit recommends that an operations and maintenance plan be implemented for any Hazardous Substance, whether such Hazardous Substance existed prior to the ownership of the applicable Property by Borrower, or presently exists or is reasonably suspected of existing, Indemnitor shall cause such operations and maintenance plan to be prepared and implemented at their expense upon request of Lender, and with respect to any Toxic Mold, Indemnitor shall take all action necessary to clean and disinfect any portions of the Improvements affected by Toxic Mold in or about the Improvements, including providing any necessary moisture control systems at the affected Property. If any investigation, site monitoring, containment, cleanup, removal, restoration or other work of any kind is required under an applicable Environmental Law (“Remedial Work”), Indemnitor shall commence all such Remedial Work within 30 days after written demand by Lender and thereafter diligently prosecute to completion all such Remedial Work within such period of time as may be required under applicable law). All Remedial Work shall be performed by licensed contractors approved in advance by Lender in its reasonable discretion and under the supervision of a consulting engineer approved by Lender. All costs of such Remedial Work shall be paid by Indemnitor, including Lender’s reasonable attorneys’ fees and disbursements incurred in connection with the monitoring or review of such Remedial Work. If Indemnitor does not timely commence and diligently prosecute to completion the Remedial Work, Lender may (but shall not be obligated to) cause such Remedial Work to be performed at Indemnitor’s expense. Notwithstanding the foregoing, Indemnitor shall not be required to commence such Remedial Work within the above

specified time period: (x) if prevented from doing so by any governmental authority, (y) if commencing such Remedial Work within such time period would result in Indemnitor or such Remedial Work violating any Environmental Law, or (z) if Indemnitor, at its expense and after prior written notice to Lender, is contesting by appropriate legal, administrative or other proceedings, conducted in good faith and with due diligence, the need to perform Remedial Work. Indemnitor shall have the right to contest the need to perform such Remedial Work, provided that, (1) Indemnitor is permitted by the applicable Environmental Laws to delay performance of the Remedial Work pending such proceedings, (2) neither any Property nor any part thereof or interest therein will be sold, forfeited or lost if Indemnitor fails to promptly perform the Remedial Work being contested, and if Indemnitor fails to prevail in contest Indemnitor would thereafter have the opportunity to perform such Remedial Work, (3) Lender would not, by virtue of such permitted contest, be exposed to any risk of any civil liability for which Indemnitor has not furnished additional security as provided in clause (4) below, or to any risk of criminal liability, and neither any Property nor any interest therein would be subject to the imposition of any lien for which Indemnitor has not furnished additional security as provided in clause (4) below, as a result of the failure to perform such Remedial Work and (4) Indemnitor shall have furnished to Lender additional security in respect of the Remedial Work being contested and the loss or damage that may result from Indemnitor’s failure to prevail in such contest in such amount as may be reasonably requested by Lender but in no event less than one hundred twenty-five percent (125%) of the cost of such Remedial Work as reasonably estimated by Lender or Lender’s Consultant and any loss or damage that may result from Indemnitor’s failure to prevail in such contest.

(e)        Indemnitor shall not install or permit to be installed on any Property any underground storage tank.