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HOTEL LEASE AGREEMENT EFFECTIVE AS OF DECEMBER 15, 2004 BETWEEN APPLE HOSPITALITY FIVE, INC., A VIRGINIA CORPORATION, AS LESSOR AND APPLE HOSPITALITY FIVE MANAGEMENT, INC., A VIRGINIA CORPORATION AS LESSEE

Lease Agreement

HOTEL LEASE AGREEMENT 

 

EFFECTIVE AS OF DECEMBER 15, 2004 

 

BETWEEN 

 

APPLE HOSPITALITY FIVE, INC., 

A VIRGINIA CORPORATION, 

 

AS LESSOR 

 

AND 

 

APPLE HOSPITALITY FIVE MANAGEMENT, INC., 

A VIRGINIA CORPORATION 

 

AS LESSEE | Document Parties: APPLE HOSPITALITY FIVE, INC.,  | APPLE HOSPITALITY FIVE MANAGEMENT, INC., You are currently viewing:
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APPLE HOSPITALITY FIVE, INC., | APPLE HOSPITALITY FIVE MANAGEMENT, INC.,

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Title: HOTEL LEASE AGREEMENT EFFECTIVE AS OF DECEMBER 15, 2004 BETWEEN APPLE HOSPITALITY FIVE, INC., A VIRGINIA CORPORATION, AS LESSOR AND APPLE HOSPITALITY FIVE MANAGEMENT, INC., A VIRGINIA CORPORATION AS LESSEE
Date: 3/11/2005

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Exhibit 10.33

 

Tucson, Arizona (RI)

 

HOTEL LEASE AGREEMENT

 

EFFECTIVE AS OF DECEMBER 15, 2004

 

BETWEEN

 

APPLE HOSPITALITY FIVE, INC.,

A VIRGINIA CORPORATION,

 

AS LESSOR

 

AND

 

APPLE HOSPITALITY FIVE MANAGEMENT, INC.,

A VIRGINIA CORPORATION

 

AS LESSEE

 


Exhibit 10.33

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

  

 

  

PAGE


 

ARTICLE 1 LEASED PROPERTY; OTHER DEFINITIONS

  

1

1.1

  

Leased Property

  

1

1.2.

  

Definitions

  

2

ARTICLE 2 TERM; TERMINATION

  

14

2.1.

  

Term

  

14

2.2.

  

Lessor’s Option to Terminate Lease

  

14

2.3.

  

Transition Procedures

  

15

2.4.

  

Holding Over

  

16

ARTICLE 3 RENT; RENT ADJUSTMENTS

  

17

3.1.

  

Rent

  

17

3.2.

  

Confirmation of Percentage Rent

  

20

3.3.

  

Additional Charges

  

20

3.4.

  

Net Lease; No Termination, Abatement, Etc.

  

21

3.5.

  

Material Changes in Economic Climate

  

22

3.6.

  

Rent Adjustment: Basic Assumptions Incorrect

  

23

ARTICLE 4 ANNUAL BUDGETS; BOOKS AND RECORDS

  

24

4.1.

  

Annual Budget

  

24

4.2.

  

Books and Records

  

24

ARTICLE 5 IMPOSITIONS; HOTEL COSTS

  

25

5.1.

  

Payment of Impositions

  

25

5.2.

  

Notice of Impositions

  

26

5.3.

  

Adjustment of Impositions

  

26

5.4.

  

Utility Charges

  

26

5.5.

  

Insurance Premiums

  

26

5.6.

  

Franchise Fees

  

26

5.7.

  

Ground Rent

  

26

ARTICLE 6 LEASED PROPERTY; LESSEE’S PERSONAL PROPERTY

  

26

6.1.

  

Ownership of the Leased Property

  

26

6.2.

  

Lessee’s Personal Property

  

26

6.3.

  

Lessor’s Lien

  

27

6.4.

  

Lessor’s Option to Purchase Assets of Lessee

  

27

ARTICLE 7 CONDITION AND USE OF LEASED PROPERTY

  

28

7.1.

  

Condition of the Leased Property

  

28

7.2.

  

Use of the Leased Property

  

28

7.3.

  

Lessor to Grant Easements, Etc.

  

29

ARTICLE 8 LESSEE’S COMPLIANCE WITH LAW; ENVIRONMENTAL COVENANTS

  

29

8.1.

  

Compliance with Legal and Insurance Requirements, Etc.

  

29

8.2.

  

Legal Requirement Covenants

  

30

8.3.

  

Environmental Covenants

  

31

ARTICLE 9 MAINTENANCE AND REPAIRS; ENCROACHMENTS AND RESTRICTIONS

  

33

9.1.

  

Maintenance and Repairs

  

33

9.2.

  

Encroachments, Restrictions, Etc.

  

34

 

i


 

 

 

 

 

ARTICLE 10 ALTERATIONS AND IMPROVEMENTS; FF&E RESERVE

  

35

10.1.

  

Alterations

  

35

10.2.

  

Salvage

  

35

10.3.

  

Joint Use Agreements

  

35

10.4.

  

[Reserved]

  

35

10.5.

  

Furniture, Fixture and Equipment Allowance

  

35

ARTICLE 11 COMPLIANCE WITH FRANCHISE

  

36

11.1.

  

Compliance with Franchise Agreement and Management Agreement

  

36

ARTICLE 12 PERMITTED LIENS AND CONTESTS

  

36

12.1.

  

Liens

  

36

12.2.

  

Permitted Contests

  

37

ARTICLE 13 INSURANCE REQUIREMENTS

  

38

13.1.

  

General Insurance Requirements

  

38

13.2.

  

Replacement Cost

  

39

13.3.

  

Waiver of Subrogation

  

39

13.4.

  

Form Satisfactory, Etc.

  

39

13.5.

  

Increase in Limits

  

40

13.6.

  

Blanket Policy

  

40

13.7.

  

No Separate Insurance

  

40

13.8.

  

Reports On Insurance Claims

  

41

ARTICLE 14 CASUALTY INSURANCE PROCEEDS; RECONSTRUCTION

  

41

14.1.

  

Insurance Proceeds

  

41

14.2.

  

Reconstruction in the Event of Damage or Destruction Covered by Insurance

  

41

14.3.

  

Reconstruction in the Event of Damage or Destruction Not Covered by Insurance

  

42

14.4.

  

Lessee’s Property

  

43

14.5.

  

Abatement of Rent

  

43

14.6.

  

Damage Near End of Term

  

43

14.7.

  

Waiver

  

43

ARTICLE 15 CONDEMNATION; AWARD ALLOCATION

  

43

15.1.

  

Definitions

  

43

15.2.

  

Parties’ Rights and Obligations

  

44

15.3.

  

Total Taking

  

44

15.4.

  

Allocation of Award

  

44

15.5.

  

Partial Taking

  

44

15.6.

  

Temporary Taking

  

44

ARTICLE 16 DEFAULT BY LESSEE; LESSOR'S REMEDIES

  

45

16.1.

  

Events of Default

  

45

16.2.

  

Surrender

  

46

16.3.

  

Damages

  

47

16.4.

  

Waiver

  

48

16.5.

  

Application of Funds

  

48

16.6.

  

Lessor’s Right to Cure Lessee’s Default

  

48

ARTICLE 17 DEFAULT BY LESSOR; LESSEE'S REMEDIES

  

48

17.1.

  

Breach by Lessor

  

48

17.2.

  

Lessee’s Right to Cure

  

49

17.3.

  

Provisions Relating to Purchase of the Leased Property by Lessee

  

49

 

ii


 

 

 

 

 

ARTICLE 18 INDEMNIFICATION

  

50

18.1.

  

Indemnification

  

50

ARTICLE 19 REIT REQUIREMENTS AND RESTRICTIONS

  

51

19.1.

  

Personal Property Limitation

  

51

19.2.

  

Sublease Rent Limitation

  

51

19.3.

  

Sublease Tenant Limitation

  

51

19.4.

  

Lessee Ownership Limitations

  

51

19.5.

  

Lessee Officer and Employee Limitation

  

51

19.6.

  

Payments to Affiliates of Lessee

  

52

ARTICLE 20 SUBLETTING AND ASSIGNMENT

  

52

20.1.

  

Subletting and Assignment

  

52

20.2.

  

Attornment

  

52

20.3.

  

Conveyance by Lessor

  

53

ARTICLE 21 QUIET ENJOYMENT; RISK OF LOSS

  

53

21.1.

  

Quiet Enjoyment

  

53

21.2.

  

Risk of Loss

  

53

ARTICLE 22 LESSOR MORTGAGES; SUBORDINATION OF LEASE

  

53

22.1.

  

Lessor May Grant Liens

  

53

22.2.

  

Subordination of Lease

  

54

ARTICLE 23 ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS; INSPECTION RIGHTS

  

54

23.1.

  

Estoppel Certificates; Financial Statements

  

54

23.2.

  

Lessor’s Right to Inspect

  

55

ARTICLE 24 APPRAISERS

  

55

24.1.

  

Appraisers

  

55

ARTICLE 25 ARBITRATION AND DISPUTE RESOLUTION PROCEDURES

  

56

25.1.

  

Arbitration

  

56

25.2.

  

Alternative Arbitration

  

56

25.3.

  

Arbitration Procedure

  

57

ARTICLE 26 NOTICES

  

57

26.1.

  

Notices

  

57

ARTICLE 27 MISCELLANEOUS

  

57

27.1.

  

No Waiver

  

57

27.2.

  

Remedies Cumulative

  

58

27.3.

  

Waiver of Trial by Jury

  

58

27.4.

  

Acceptance of Surrender

  

58

27.5.

  

No Merger of Title

  

58

27.6.

  

Waiver of Presentment, Etc.

  

58

27.7.

  

Action for Damages

  

58

27.8.

  

Lease Assumption in Bankruptcy Proceeding

  

58

27.9.

  

Enforceability

  

59

27.10.

  

Memorandum of Lease

  

59

 

iii


Exhibit A - Legal Description

Schedule 2.1 – Commencement Dates

Schedule 3.1(a) – Base Rents

Schedule 3.1(b) – Suite Revenue Breakpoint

 

iv


Exhibit 10.33

 

HOTEL LEASE AGREEMENT

 

THIS HOTEL LEASE AGREEMENT (hereinafter called “Lease”), effective as of the 15 th of December, 2004, by and between Apple Hospitality Five, Inc., a Virginia corporation (hereinafter called “Lessor”), and Apple Hospitality Five Management, Inc., a Virginia corporation (hereinafter called “Lessee”), provides as follows:

 

AGREEMENT:

 

Lessor, for and in consideration of the payment of rent by Lessee to Lessor, the covenants and agreements to be performed by Lessee, and upon the terms and conditions hereinafter stated, does hereby rent and lease unto Lessee, and Lessee does hereby rent and lease from Lessor, the Leased Property.

 

ARTICLE 1

LEASED PROPERTY; OTHER DEFINITIONS

 

1.1. Leased Property. The Leased Property shall mean and is comprised of Lessor’s interest in the following:

 

(a) the land described in Exhibit A attached hereto and by reference incorporated herein (the “Land”);

 

(b) all buildings, structures and other improvements of every kind including, but not limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and offsite), parking areas and roadways appurtenant to such buildings and structures presently situated upon the Land (collectively, the “Leased Improvements”);

 

(c) all easements, rights and appurtenances relating to the Land and the Leased Improvements;

 

(d) all equipment, machinery, fixtures, and other items of property required for or incidental to the use of the Leased Improvements as a hotel, including all components thereof, now and hereafter permanently affixed to or incorporated into the Leased Improvements, including, without limitation, all furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting, ventilating, refrigerating, incineration, air and water pollution control, waste disposal, air-cooling and air-conditioning systems and apparatus, sprinkler systems and fire and theft protection equipment, all of which to the greatest extent permitted by law are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto (collectively, the “Fixtures”);

 

(e) all furniture and furnishings and all other items of personal property (excluding Inventory and personal property owned by Lessee) located on, and used in connection with, the operation of the Leased Improvements as a hotel, together with all replacements, modifications, alterations and additions thereto; and

 


(f) all existing leases of space within the Leased Property (including any security deposits or collateral held by Lessor pursuant thereto).

 

THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS OF RECORD INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS AND OTHER MATTERS WHICH WOULD BE DISCLOSED BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY THEREOF.

 

1.2. Definitions. For all purposes of this Lease, except as otherwise expressly provided or unless the context otherwise requires, (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular, (b) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles as are at the time applicable, (c) all references in this Lease to designated “Articles,” “Sections” and other subdivisions are to the designated Articles, Sections and other subdivisions of this Lease and (d) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Lease as a whole and not to any particular Article, Section or other subdivision:

 

Additional Charges : As defined in Section 3.3.

 

Affiliate : As used in this Lease the term “Affiliate” of a Person shall mean (a) any Person that, directly or indirectly, controls or is controlled by or is under common control with such Person, (b) any other Person that owns, beneficially, directly or indirectly, ten percent (10%) or more of the outstanding capital stock, shares or equity interests of such Person, or (c) any officer, director, employee, partner, manager or trustee of such Person or any Person controlling, controlled by or under common control with such Person or any Person that owns, beneficially, directly or indirectly, ten percent (10%) or more of the outstanding capital stock, shares or equity interests of such Person (excluding trustees and Persons serving in similar capacities who are not otherwise an Affiliate of such Person). For the purposes of this definition, “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, partnership interests or other equity interests.

 

Annual Budget : As used in this Lease, the term “Annual Budget” shall mean an operating and capital budget prepared by Lessee and delivered to Lessor in accordance with Section 4.1.

 

Annual Revenues Computation : As defined in Subsection 3.1(b).

 

Award : As defined in Subsection 15.1(a).

 

2


Base Rate : The rate of interest announced publicly by Citibank, N.A., in New York, New York, from time to time, as such bank’s base rate. If no such rate is announced or if such rate becomes discontinued, then such other rate as Lessor may reasonably designate.

 

Base Rent : As defined in Subsection 3.1(a).

 

Business Day : Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which national banks in the City of New York, New York, or in the municipality wherein the Leased Property is located are closed.

 

CERCLA : The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.

 

Change of Control : The sale, conveyance, assignment, encumbering, pledging, hypothecation, granting a security interest in, granting of options with respect to, or other disposition of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration) of any class stock or other equity interests in a Person (other than among existing holders of interests in such Person on the Commencement Date and/or family members of such holders and/or trusts for the benefit of any of the foregoing) that, upon a transfer of any portion thereof, will create in the transferee thereof, directly or indirectly, a majority of any class of stock or other equity interests of such Person.

 

Claims : As defined in Section 12.2.

 

COBRA : As defined in Subsection 8.2(b).

 

Code : The Internal Revenue Code of 1986, as amended.

 

Commencement Date : As defined in Section 2.1.

 

Competitive Set : As defined in the STR Reports. Lessor and Lessee shall work in good faith to determine any additions and deletions to the Hotel’s Competitive Set, on or before November 15th of each year, with such changes to be applicable for the following Fiscal Year. In the event Lessor and Lessee cannot agree to the Hotel’s Competitive Set by November 15th of any year, such unagreed items shall be determined by Smith Travel Research (or, if it refuses or is unable to do so, by arbitration pursuant to Section 25.2). The costs of resetting the Hotel’s Competitive Set shall be borne equally by the parties.

 

Comparison Month : As defined in Subsection 3.1(d).

 

Condemnation, Condemnor : As defined in Section 15.1

 

Consolidated Financials : For any fiscal year or other accounting period for Lessee and its consolidated subsidiaries, if any, statements of earnings and retained earnings and of changes in financial position for such period and for the period from the beginning of the respective fiscal year to the end of such period and the related balance sheet as at the end of such period,

 

3


together with the notes thereto, all in reasonable detail and setting forth in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, and prepared in accordance with generally accepted accounting principles and audited by independent certified public accountants acceptable to Lessor in its sole discretion.

 

Consumer Price Index : The “U.S. City Average, All Items” Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor (Base: 1982-1984=100), or any successor index thereto. If the Consumer Price Index is hereafter converted to a different standard reference base or otherwise revised, any determination hereunder that uses the Consumer Price Index shall be made with the use of such conversion factor, formula or table for converting the Consumer Price Index as may be published by the Bureau of Labor Statistics, or, if the Bureau shall no longer publish the same, then with the use of such conversion factor, formula or table as may be published by Prentice Hall, Inc., or, failing such publication, by any other nationally recognized publisher of similar statistical information.

 

Date of Taking : As defined in Subsection 15.1(d).

 

Encumbrance : As defined in Section 22.1.

 

Environmental Audit : As defined in Subsection 8.3(b).

 

Environmental Authority : Any department, agency or other body or component of any Government that exercises any form of jurisdiction or authority under any Environmental Law.

 

Environmental Authorization : Any license, permit, order, approval, consent, notice, registration, filing or other form of permission or authorization required under any Environmental Law.

 

Environmental Laws : All applicable federal, state, local and foreign laws and regulations relating to pollution of the environment (including without limitation, ambient air, surface water, ground water, land surface or subsurface strata), including without limitation laws and regulations relating to emissions, discharges, Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. Environmental Laws include but are not limited to CERCLA, FIFRA, RCRA, SARA and TSCA.

 

Environmental Liabilities : Any and all obligations to pay the amount of any judgment or settlement, the cost of complying with any settlement, judgment or order for injunctive or other equitable relief, the cost of compliance or corrective action in response to any notice, demand or request from an Environmental Authority, the amount of any civil penalty or criminal fine, and any court costs and reasonable amounts for attorney’s fees, fees for witnesses and experts, and costs of investigation and preparation for defense of any claim or any Proceeding, regardless of whether such Proceeding is threatened, pending or completed, that may be or have been asserted against or imposed upon Lessor, Lessee, any Predecessor, the Leased Property or any property used therein and arising out of:

 

(a) Failure of Lessee, Lessor, any Predecessor or the Leased Property to comply at any time with all Environmental Laws;

 

4


(b) Presence of any Hazardous Materials on, in, under, at or in any way affecting the Leased Property;

 

(c) A Release at any time of any Hazardous Materials on, in, at, under or in any way affecting the Leased Property;

 

(d) Identification of Lessee, Lessor or any Predecessor as a potentially responsible party under CERCLA or under any Environmental Law similar to CERCLA;

 

(e) Presence at any time of any above-ground and/or underground storage tanks, as defined in RCRA or in any applicable Environmental Law on, in, at or under the Leased Property or any adjacent site or facility; or

 

(f) Any and all claims for injury or damage to Persons or property arising out of exposure to Hazardous Materials originating or located at the Leased Property, or resulting from operation thereof or any adjoining property.

 

Event of Default : As defined in Section 16.1.

 

Fair Market Rental : The fair market rental of the Leased Property means the rental which a willing tenant not compelled to rent would pay a willing landlord not compelled to lease for the use and occupancy of such Leased Property pursuant to the Lease for the term in question, (a) assuming that Lessee is not in default thereunder and (b) determined in accordance with the appraisal procedures set forth in Article 24 or in such other manner as shall be mutually acceptable to Lessor and Lessee.

 

Fair Market Value : The fair market value of the Leased Property means an amount equal to the price that a willing buyer not compelled to buy would pay a willing seller not compelled to sell for such Leased Property, (a) assuming the same is unencumbered by this Lease, (b) determined in accordance with the appraisal procedures set forth in Article 24 or in such other manner as shall be mutually acceptable to Lessor and Lessee, (c) assuming that such seller must pay customary closing costs and title premiums, and (d) taking into account the positive or negative effect on the value of the Leased Property attributable to the interest rate, amortization schedule, maturity date, prepayment penalty and other terms and conditions of any encumbrance that is assumed by the transferee. In addition, in determining the Fair Market Value with respect to damaged or destroyed Leased Property such value shall be determined as if such Leased Property had not been so damaged or destroyed.

 

FIFRA : The Federal Insecticide, Fungicide, and Rodenticide Act, as amended.

 

Fiscal Year : The twelve (12) month period from January 1 to December 31, or any shorter period at the beginning or end of the Term.

 

5


Fixtures : As defined in Section 1.1.

 

Force Majeure : An Unavoidable Occurrence, generally affecting travel and/or the hotel or lodging business in the market and/or submarket in which the Hotel is located.

 

Franchise Agreement : Any franchise agreement or license agreement with a franchisor (such as Residence Inn by Marriott) under which the Hotel is operated.

 

Furniture and Equipment : For purposes of this Lease, the terms “furniture and equipment” shall mean collectively all furniture, furnishings, wall coverings, fixtures and hotel equipment and systems located at, or used in connection with, the Hotel, together with all replacements therefor and additions thereto, including, without limitation, (i) all equipment and systems required for the operation of kitchens and bars, laundry and dry cleaning facilities, (ii) office equipment, (iii) material handling equipment, cleaning and engineering equipment, (iv) telephone and computerized accounting systems, and (v) vehicles.

 

Government : The United States of America, any state, district or territory thereof, any foreign nation, any state, district, department, territory or other political division thereof, or any agency or political subdivision of any of the foregoing.

 

Gross Operating Expenses : The term “Gross Operating Expenses” shall include (i) all costs and expenses of operating the Hotel included within the meaning of the term “Total Costs and Expenses” contained in the Uniform System and, (ii) without duplication, the following: all salaries and employee expense and payroll taxes (including salaries, wages, bonuses and other compensation of all employees of the Hotel, and benefits including life, medical and disability insurance and retirement benefits), expenditures described in Section 9.1, operational supplies, utilities, insurance to be provided by Lessee under the terms of this Lease, governmental fees and assessments, common area maintenance costs and other common area fees and assessments, food, beverages, laundry service expense, the cost of Inventories, license fees, advertising, marketing, reservation systems and any and all other operating expenses as are reasonably necessary for the proper and efficient operation of the Hotel and the Leased Property incurred by Lessee in accordance with the provisions hereof (excluding, however, (i) federal, state and municipal excise, sales and use taxes collected directly from patrons and guests or as a part of the sales price of any goods, services or displays, such as gross receipts, admissions, cabaret or similar or equivalent taxes paid over to federal, state or municipal governments, (ii) the cost of insurance to be provided under Article 13, (iii) expenditures by Lessor pursuant to Article 13 and (iv) payments on any Mortgage or other mortgage or security instrument on the Hotel); all determined in accordance with generally accepted accounting principles. No part of Lessee’s central office overhead or general or administrative expense (as opposed to that of the Hotel) shall be deemed to be a part of Gross Operating Expenses, as herein provided. Reasonable out-of-pocket expenses of Lessee incurred for the account of or in connection with the Hotel operations, including but not limited to postage, telephone charges and reasonable travel expenses of employees, officers and other representatives and consultants of Lessee and its Affiliates, shall be deemed to be a part of Gross Operating Expenses and such Persons shall be afforded reasonable accommodations, food, beverages, laundry, valet and other such services by and at the Hotel without charge to such Persons or Lessee.

 

6


Gross Operating Profit : For any Fiscal Year, the excess of Gross Revenues for such Fiscal Year over Gross Operating Expenses for such Fiscal Year.

 

Gross Revenues : All revenues, receipts, and income of any kind derived directly or indirectly by Lessee from or in connection with the Hotel (including rentals or other payments from tenants, lessees, licensees or concessionaires but not including their gross receipts) whether on a cash basis or credit, paid or collected, determined in accordance with generally accepted accounting principles, excluding, however: (i) funds furnished by Lessor, (ii) federal, state and municipal excise, sales, and use taxes collected directly from patrons and guests or as a part of the sales price of any goods, services or displays, such as gross receipts, admissions, cabaret or similar or equivalent taxes and paid over to federal, state or municipal governments, (iii) the amount of all credits, rebates or refunds to customers, guests or patrons, and all service charges, finance charges, interest and discounts attributable to charge accounts and credit cards, to the extent the same are paid to Lessee by its customers, guests or patrons, or to the extent the same are paid for by Lessee to, or charged to Lessee by, credit card companies, (iv) gratuities or service charges actually paid to employees, (v) proceeds of insurance and condemnation, (vi) proceeds from sales other than sales in the ordinary course of business, (vii) all loan proceeds from financing or refinancings of the Hotel or interests therein or components thereof, (viii) judgments and awards, except any portion thereof arising from normal business operations of the Hotel, and (ix) items constituting “allowances” under the Uniform System.

 

Hazardous Materials : All chemicals, pollutants, contaminants, wastes and toxic substances, including without limitation:

 

(a) Solid or hazardous waste, as defined in RCRA or any other Environmental Law;

 

(b) Hazardous substances, as defined in CERCLA or any other Environmental Law;

 

(c) Toxic substances, as defined in TSCA or any other Environmental Law;

 

(d) Insecticides, fungicides, or rodenticides, as defined in FIFRA or any other Environmental Law; and

 

(e) Gasoline or any other petroleum product or byproduct, polychlorinated biphenyl, asbestos and urea formaldehyde.

 

Hotel : The hotel and/or other facility offering lodging and other services or amenities being operated or proposed to be operated on the Leased Property.

 

Hotel Market Decline : A period of six (6) consecutive calendar months during which there is (i) a twenty percent (20%) decline in average hotel occupancy for the Hotel from the average hotel occupancy levels for same period during the prior calendar year and (ii) a twenty percent (20%) decline in average hotel occupancy for the Hotel’s Competitive Set from the average

 

7


hotel occupancy levels for the same period during the prior calendar year, as published in the applicable STR Reports.

 

Impositions : Collectively, all taxes (including, without limitation, all ad valorem, sales and use, single business, gross receipts, transaction, privilege, rent or similar taxes as the same relate to or are imposed upon Lessee or its business conducted upon the Leased Property), assessments (including, without limitation, all assessments for public improvements or benefit, whether or not commenced or completed prior to the date hereof and whether or not to be completed within the Term), ground rents, water, sewer or other rents and charges, excises, tax inspection, authorization and similar fees and all other governmental charges, in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen, of every character in respect of the Leased Property or the business conducted thereon by Lessee (including all interest and penalties thereon caused by any failure in payment by Lessee), which at any time prior to, during or with respect to the Term hereof may be assessed or imposed on or with respect to or be a lien upon (a) Lessor’s interest in the Leased Property, (b) the Leased Property, or any part thereof or any rent therefrom or any estate, right, title or interest therein, or (c) any occupancy, operation, use or possession of, or sales from, or activity conducted on or in connection with the Leased Property, or the leasing or use of the Leased Property or any part thereof by Lessee. Nothing contained in this definition of Impositions shall be construed to require Lessee to pay (1) any tax based on net income (whether denominated as a franchise or capital stock or other tax) imposed on Lessor or any other Person, or (2) any net revenue tax of Lessor or any other Person, or (3) any tax imposed with respect to the sale, exchange or other disposition by Lessor of any Leased Property or the proceeds thereof, or (4) any single business, gross receipts (other than a tax on any rent received by Lessor from Lessee), transaction, privilege or similar taxes as the same relate to or are imposed upon Lessor, except to the extent that any tax, assessment, tax levy or charge that Lessee is obligated to pay pursuant to the first sentence of this definition and that is in effect at any time during the Term hereof is totally or partially repealed, and a tax, assessment, tax levy or charge set forth in clause (1) or (2) is levied, assessed or imposed expressly in lieu thereof.

 

Indemnified Party : Either of a Lessee Indemnified Party or a Lessor Indemnified Party.

 

Indemnifying Party : Any party obligated to indemnify an Indemnified Party pursuant to Sections 8.3 or 18.1.

 

Insurance Requirements : All terms of any insurance policy required by this Lease and all requirements of the issuer of any such policy.

 

Inventory : All “Inventories of Merchandise” and “Inventories of Supplies” as defined in the Uniform System, including without limitation linens, china, silver, glassware and other non-depreciable personal property, and including any property of the type described in Section 1221(1) of the Code.

 

Land : As defined in Section 1.1.

 

Lease : This Lease.

 

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Leased Improvements; Leased Property : Each as defined in Section 1.1.

 

Legal Requirements : All federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting either the Leased Property or the maintenance, construction, use or alteration thereof (whether by Lessee or otherwise), whether now in force or hereafter enacted and in force, including (a) all laws, rules or regulations pertaining to the environment, occupational health and safety and public health, safety or welfare, and (b) any laws, rules or regulations that may (1) require repairs, modifications or alterations in or to the Leased Property or (2) in any way adversely affect the use and enjoyment thereof; and all permits, licenses and authorizations and regulations relating thereto and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Lessee (other than encumbrances created by Lessor without the consent of Lessee), at any time in force affecting the Leased Property.

 

Lending Institution : Any insurance company, credit company, federally-insured commercial or savings bank, national banking association, savings and loan association, employees welfare, pension or retirement fund or system, corporate profit sharing or pension trust, college or university, or real estate investment trust, including any corporation qualified to be treated for federal tax purposes as a real estate investment trust, such trust having a net worth of at least $10,000,000.

 

Lessee : The Lessee designated on this Lease and its respective permitted successors and assigns.

 

Lessee Indemnified Party : Lessee, any Affiliate of Lessee, any other Person against whom any claim for indemnification may be asserted hereunder as a result of a direct or indirect ownership interest (including a stockholder’s or member’s interest) in Lessee, the officers, directors, stockholders, members, managers, employees, agents and representatives of Lessee, and the respective heirs, personal representatives, successors and assigns of any such officer, director, stockholder, member, manager, employee, agent or representative.

 

Lessee’s Personal Property : As defined in Section 6.2.

 

Lessor : The Lessor designated In this Lease and its respective successors and assigns.

 

Lessor Indemnified Party : Lessor, any Affiliate of Lessor, any other Person against whom any claim for indemnification may be asserted hereunder as a result of a direct or indirect ownership interest (including a stockholder’s or partnership interest) in Lessor, the officers, directors, stockholders, members, managers, employees, agents and representatives of the general partner of Lessor and any partner, agent, or representative of Lessor, and the respective heirs, personal representatives, successors and assigns of any such officer, director, stockholder, partner, member, manager, employee, agent or representative.

 

Licenses : As defined in Subsection 2.3(a).

 

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Management Agreement : The agreement pursuant to which Manager operates the Hotel.

 

Manager : Texas Western Management Partners, L.P., a Texas limited partnership, or any successor manager that is retained by Lessee to operate the Hotel pursuant to this Lease and the Franchise Agreement.

 

Minimum Price : The sum of (a) the equity in the Leased Property at the time of acquisition of the Leased Property by Lessor, plus (b) other capital expenditures on the Leased Property by Lessor after the date hereof (less depreciation and amortization thereof) plus (c) the unpaid principal balance of all encumbrances against the Leased Property at the time of purchase of the Leased Property by Lessee, less (x) all proceeds received by Lessor from any financing or refinancing of the Leased Property after the date hereof (after payment of any debt refinanced and net of any costs and expenses incurred in connection with such financing or refinancing, including, without limitation, loan points, commitment fees and commissions and legal fees) and (y) the net amount (after deduction of all reasonable legal fees and other costs and expenses, including without limitation expert witness fees, incurred by Lessor in connection with obtaining any such proceeds or award) of all insurance proceeds received by Lessor and awards received by Lessor from any partial Taking of the Leased Property that are not applied to restoration.

 

Mortgage : As defined in Section 22.2.

 

National Economic Decline : A period of six (6) consecutive calendar months during which there occurs or continues a ten percent (10%) decline in average hotel occupancy, from average hotel occupancy levels for the same period during the prior calendar year, for all open and operating hotels in the United States as determined from the applicable STR Reports or, if the STR Reports are not longer published, other reputable national economic data regarding the hospitality industry.

 

Notice : As defined in Article 26.

 

Officer’s Certificate : A certificate of Lessee reasonably acceptable to Lessor, signed by the chief financial officer or another officer authorized so to sign by the board of directors or other governing body of Lessee, or bylaws or limited liability company agreement of Lessee, or any other Person whose power and authority to act has been authorized by delegation in writing by any such officer.

 

Optional Termination Date : As defined in Section 2.2.

 

Overdue Rate : On any date, a rate equal to the Base Rate plus five percent (5%) per annum, but in no event greater than the maximum rate then permitted under applicable law.

 

Payment Date : Any due date for the payment of any installment of Base Rent.

 

Percentage Rent : As defined in Subsection 3.1(b).

 

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Person : Any Government, natural person, corporation, general or limited partnership, limited liability company, stock company or association, joint venture, association, company, trust, bank, trust company, land trust, business trust, or other entity.

 

Personal Property Taxes : All personal property taxes imposed on the furniture, furnishings or other items of personal property located on, and used in connection with, the operation of the Leased Improvements as a hotel (other than Inventory and other personal property owned by Lessee), together with all replacement, modifications, alterations and additions thereto.

 

Predecessor : Any Person whose liabilities arising under any Environmental Law have or may have been retained or assumed by Lessor or Lessee, either contractually or by operation of law, relating to the Leased Property.

 

Primary Intended Use : As defined in Subsection 7.2(b).

 

Proceeding : Any judicial action, suit or proceeding (whether civil or criminal), any administrative proceeding (whether formal or informal), any investigation by a governmental authority or entity (including a grand jury), and any arbitration, mediation or other non-judicial process for dispute resolution.

 

RCRA : The Resource Conservation and Recovery Act, as amended.

 

Real Estate Taxes : All real estate taxes, including general and special assessments, if any, which are imposed upon the Land, and any improvements thereon.

 

Regional Market Decline : A period of six (6) consecutive calendar months during which there is a twenty percent (20%) decline in average hotel occupancy from hotel occupancy levels for the same period during the then prior calendar year, for all open and operating hotels in the Smith Travel Research Region in which the Hotel is located, as determined from applicable STR Reports or, if the STR Reports are no longer published, other reputable regional economic data regarding the hospitality industry.

 

Rejectable Offer Price : An amount equal to the greater of (a) the Fair Market Value, determined as of the applicable purchase date, or (b) the Minimum Price.

 

Release : A “Release” as defined in CERCLA or in any Environmental Law, unless such Release has been properly authorized and permitted in writing by all applicable Environmental Authorities or is allowed by such Environmental Law without authorizations or permits.

 

Rent : Collectively, the Base Rent, Percentage Rent and Additional Charges.

 

Repositioning : As defined in Section 3.6.

 

SARA : The Superfund Amendments and Reauthorization Act of 1986, as amended.

 

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Solvent : As to any Person, (a) the sum of the assets of such Person exceeds its liabilities and (b) such Person has sufficient capital with which to conduct its business as presently conducted and as proposed to be conducted.

 

State : The state or commonwealth in which the Hotel is located.

 

STR Reports : Reports compiled by Smith Travel Research, or its successor, which contain historical supply and demand, occupancy, and average rate information for the Hotel and hotels with which it competes (or, in the event that Smith Travel Research discontinues providing such information, reports of similar nature compiled by an authority recognized nationally in the hospitality industry).

 

Subsidiaries : Persons in which Lessee owns, directly or indirectly, more than fifty percent (50%) of the voting stock or control, as applicable.

 

Suite Revenue Breakpoint : As defined in Subsection 3.1(b).

 

Suite Revenues : All revenues, receipts, and income of any kind derived directly or indirectly by Lessee from or in connection with (i) the rental of guest rooms or suites, whether to individuals, groups or transients, at the Hotel and (ii) the Hotel’s meeting rooms, telephones, TV and movie rentals, check room, washroom, laundry, valet, vending machines, and other sources, in each case, whether on a cash basis or credit, paid or collected, determined in accordance with generally accepted accounting principles, but, in each case, excluding the following:

 

(a) The amount of all credits, rebates or refunds to customers, guests or patrons, and all service charges, finance charges, interest and discounts attributable to charge accounts and credit cards, to the extent the same are paid to Lessee by its customers, guests or patrons, or to the extent the same are paid for by Lessee to, or charged to Lessee by, credit card companies;

 

(b) All sales taxes or any other taxes imposed on the rental of such guest rooms or suites or imposed in connection with the Hotel’s meeting rooms, telephones, TV and movie rentals, check room, washroom, laundry, valet, vending machines, and other sources of revenue;

 

(c) Gratuities or service charges actually paid to employees; and

 

(d) Proceeds of business interruption and other insurance.

 

Taking : A taking or voluntary conveyance during the Term hereof of all or part of the Leased Property, or any interest therein or right accruing thereto or use thereof, as the result of, or in settlement of, any Condemnation or other eminent domain Proceeding affecting the Leased Property whether or not the same shall have actually been commenced.

 

Term : As defined in Section 2.1.

 

TSCA : The Toxic Substances Control Act, as amended.

 

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Unavoidable Delays : Delays due to strikes, lock-outs, labor unrest, inability to procure materials, power failure, acts of God, governmental restrictions, enemy action, civil commotion, fire, unavoidable casualty or other causes beyond the control of the party responsible for performing an obligation hereunder, provided that lack of funds shall not be deemed a cause beyond the control of either party hereto unless such lack of funds is caused by the failure of the other party hereto to perform any obligations of such party under this Lease or any guaranty of this Lease.

 

Unavoidable Occurrence . The occurrence of strikes, lockouts, labor unrest, gasoline and other energy shortages, widespread disruption of air, auto or other travel, inability to procure materials or services, power or other utility failure, acts of God (such as hurricanes, tornadoes, earthquakes, floods and mud slides), governmental restrictions, war or other enemy or terrorist action, civil commotion, fire, casualty, condemnation or other similar causes, in each case, if such cause is beyond the reasonable control of Lessee; provided that (i) lack of funds shall not be deemed a cause beyond the reasonable control of either party hereto unless such lack of funds is caused by the failure of the other party hereto to perform any obligations of such party under this Lease or any guaranty of this Lease, and (ii) any such occurrence is an extraordinary, as opposed to a routine or cyclical, material event that was not reasonably foreseeable when the then-applicable Annual Budget was prepared.

 

Uneconomic for its Primary Intended Use : A state or condition of the Hotel such that, in the good faith judgment of Lessee, reasonably exercised and evidenced by the resolution of the board of directors or other governing body of Lessee, the Hotel cannot be operated on a commercially practicable basis for its Primary Intended Use, taking into account, among other relevant factors, the number of usable rooms and projected revenues, such that Lessee intends to, and shall, complete the cessation of operations from the Leased Hotel.

 

Uniform System : The Uniform System of Accounts for Hotels (9th Revised Edition, 1996) as published by the Hotel Association of New York City, Inc., with such later revisions as may be agreed to by both Lessor and Lessee.

 

Unsuitable for its Primary Intended Use : A state or condition of the Hotel such that, in the good faith judgment of Lessee, reasonably exercised and evidenced by the resolution of the board of directors or other governing body of Lessee, due to casualty damage or loss through Condemnation, the Hotel cannot function as an integrated hotel facility consistent with standards applicable to a well maintained and operated hotel.

 

WARN Act : As defined in Subsection 8.2(b).

 

Working Capital : Funds reasonably necessary for the day-to-day operation of the Hotel’s business for a thirty (30) day period, including, without limitation, amounts sufficient for the maintenance of change and petty cash funds, operating bank accounts, payrolls, accounts payable, accrued current liabilities, and funds required to maintain Inventories.

 

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ARTICLE 2

TERM; TERMINATION

 

2.1. Term.

 

(a) The term of the Lease (the “Term”) shall commence on the date specified in Schedule 2.1 (the “Commencement Date”), and shall end on the tenth (10th) anniversary of the Commencement Date, unless sooner terminated in accordance with the provisions hereof or extended to an anniversary of the initial expiration date pursuant to this Article 2.

 

(b) Lessee is granted the option to extend the Term of this Lease for a period of five (5) years (the “First Extension”), provided that Lessee is not in default hereunder either at the time of deemed exercise of the option or at the end of the original Term, which option must be exercised by written notice to Lessor at least one hundred twenty (120) days prior to the expiration of the original Term. The First Extension shall be upon the same terms, conditions and rentals as set forth herein for the original Term.

 

(c) Lessee is granted an option to extend the Term for a period of five (5) years following the end of the First Extension (the “Second Extension”), provided that Lessee is not in default hereunder either at the time of exercise of the option or at the end of the First Extension, which option must be exercised by written notice to Lessor at least one hundred twenty (120) days prior to the expiration of the First Extension. If such option is exercised, Lessor and Lessee shall negotiate in good faith modifications to the Rent for the Second Extension to adjust such Rent to market rates for arms-length hotel REIT leases between unrelated parties for similar hotel properties at that time. In the event Lessor and Lessee are unable to agree upon Rent terms for the Second Extension at least ninety (90) days prior to the expiration of the Term, the Rent terms for the Second Extension shall be determined by a panel of three (3) persons who have generally recognized expertise in evaluating hotel REIT leases and who are not Affiliates of Lessor or Lessee. Lessee and the Lessor each shall have the right to designate one panel member and the two (2) panel members so designated will designate the third panel member. Rent terms approved by at least two (2) of the three (3) panel members will be binding on Lessee and Lessor for the Second Extension, which shall be otherwise on the terms set forth herein. In determining the market rates for the Second Extension, the panel members shall be instructed to consider hotel REIT lease terms with respect to similar hotel property types. The Second Extension shall be otherwise upon the same terms and conditions as set forth herein for the original Term.

 

2.2. Lessor’s Option to Terminate Lease. In the event Lessor enters into a bona fide contract to sell the Leased Property to a non-Affiliate, there is a Change of Control of Lessor, or the provisions of the Code are amended to permit Lessor to operate hotels or otherwise render the structure embodied by this Lease to be obsolete, Lessor may terminate the Lease by giving not less than thirty (30) days’ prior Notice to Lessee of Lessor’s election to terminate the Lease effective upon, as appropriate, the closing under such contract, the date of such Change of Control, or the effective date of such amendment to the Code (or any other specified date within 30 days after such date) (the “Optional Termination Date”). Effective upon the Optional Termination Date, this Lease shall terminate and be of no further force and effect except as to any obligations of the parties existing as of such date that survive termination of this Lease. As compensation for the early

 

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termination of its leasehold estate under this Section 2.2, Lessor shall within 12 months of the Optional Termination Date either (a) pay to Lessee the fair market value of Lessee’s leasehold estate hereunder plus interest thereon at the Base Rate as of the Optional Termination Date or (b) offer to lease to Lessee one or more substitute hotel facilities pursuant to one or more leases that would create for Lessee leasehold estates that have an aggregate fair market value of no less than the fair market value of the original leasehold estate, both such values as determined as of the Optional Termination Date. Lessor also shall pay to Lessee, or reimburse Lessee for any assignment fees, termination fees or other liabilities arising under the Franchise Agreement or Management Agreement solely as a result of the assignment or termination of such Franchise Agreement or Management Agreement in connection with the termination of this Lease under this Section 2.2. If Lessor elects and complies with the option described in (b) above, regardless of whether Lessee enters into the lease(s) described therein, Lessor shall have no further obligations to Lessee with respect to compensation for the early termination of this Lease. In the event Lessor and Lessee are unable to agree upon the fair market value of an original or replacement leasehold estate, it shall be determined by appraisal using the appraisal procedure set forth in Article 24.

 

For the purposes of this Article, fair market value of the leasehold estate means, as applicable, an amount equal to the price that a willing buyer not compelled to buy would pay a willing seller not compelled to sell for Lessee’s leasehold estate under this Lease or an offered replacement leasehold estate, taking into account that the leasehold estate is encumbered by the Franchise Agreement and an arm’s-length Management Agreement.

 

2.3. Transition Procedures. Upon the expiration or termination of the Term of this Lease, for whatever reason (other than a purchase of the Leased Property by Lessee), Lessor and Lessee shall do the following (and the provisions of this Section 2.3 shall survive the expiration or termination of this Lease until they have been fully performed) and, in general, shall cooperate in good faith to effect an orderly transition of the management and/or lease of the Hotel:

 

(a) Transfer of Licenses . Lessee shall use reasonable efforts (i) to transfer to Lessor or Lessor’s nominee all licenses, operating permits and other governmental authorizations and all contracts, including contracts with governmental or quasi-governmental entities, that may be necessary for the operation of the Hotel (collectively, “Licenses”), or (ii) if such transfer is prohibited by law or Lessor otherwise elects, to cooperate with Lessor or Lessor’s nominee in connection with the processing by Lessor or Lessor’s nominee of any applications for, all Licenses; provided, in either case, that the costs and expenses of any such transfer or the processing of any such application shall be paid by Lessor or Lessor’s nominee.

 

(b) Leases and Concessions . Lessee shall assign to Lessor or Lessor’s nominee simultaneously with the termination of this Lease, and the assignee shall assume, all leases and concession agreements in effect with respect to the Hotel then in Lessee’s name.

 

(c) Books and Records . All books and records for the Hotel kept by Lessee pursuant to Section 4.2 shall be delivered promptly to Lessor or Lessor’s nominee, simultaneously with the termination of this Lease, but such books and records shall thereafter be available to Lessee at all reasonable times for inspection, audit, examination, and transcription for a period of one (1) year and Lessee may retain (on a confidential basis) copies or computer records thereof.

 

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(d) Receivables and Payables . Lessee shall be entitled to retain all cash, bank accounts and house banks, and to collect all Gross Revenues and accounts receivable accrued through the termination date. Lessee shall be responsible for the payment of Rent, all Gross Operating Expenses and all other obligations of Lessee accrued under this Lease as of the termination date, and Lessor or Lessor’s nominee shall be responsible for all Gross Operating Expenses of the Hotel accruing after the termination date.

 

(e) Final Accounting . Lessee shall, within forty five (45) days after the expiration or termination of the Term, prepare and deliver to Lessor a final accounting statement, dated as of the date of the expiration or termination, along with a statement of any sums due from Lessee to Lessor pursuant hereto and payment of such funds.

 

(f) Inventory . Lessee shall insure that the Leased Property, at the date of such termination or expiration, has Inventory of a substantially equivalent nature and amount as exists at the Leased Property on the Commencement Date, and Lessor or its designee shall acquire such Inventory from Lessee for a sale price equal to the fair market value of such Inventory.

 

(g) Surrender . Lessee will, upon the expiration or prior termination of the Term, vacate and surrender the Leased Property to Lessor in the condition in which the Leased Property was originally received from Lessor, except as repaired, rebuilt, restored, altered or added to as permitted or required by the provisions of this Lease and except for ordinary wear and tear (subject to the obligation of Lessee to maintain the Leased Property in good order and repair, as would a prudent owner, during the entire Term of the Lease), or damage by casualty or Condemnation (subject to the obligations of Lessee to restore or repair as set forth in the Lease)

 

The provisions of this Section 2.3 shall survive the expiration or termination of this Lease until they have been fully performed. Nothing contained herein shall limit Lessor’s rights and remedies under this Lease if such termination occurs as the result of an Event of Default.

 

2.4. Holding Over. If Lessee for any reason remains in possession of the Leased Property after the expiration or earlier termination of the Term, such possession shall be as a tenant at sufferance during which time Lessee shall pay as rental each month 150% of the aggregate of (a) one-twelfth of the aggregate Base Rent and Percentage Rent payable with respect to the last Fiscal Year of the Term, (b) all Additional Charges accruing during the applicable month and (c) all other sums, if any, payable by Lessee under this Lease with respect to the Leased Property. During such period, Lessee shall be obligated to perform and observe all of the terms, covenants and conditions of this Lease, but shall have no rights hereunder other than the right, to the extent given by law to tenancies at sufferance, to continue its occupancy and use of the Leased Property. Nothing contained herein shall constitute the consent, express or implied, of Lessor to the holding over of Lessee after the expiration or earlier termination of this Lease.

 

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ARTICLE 3

RENT; RENT ADJUSTMENTS

 

3.1. Rent. Lessee will pay to Lessor in lawful money of the United States of America which shall be legal tender for the payment of public and private debts, in immediately available funds, at Lessor’s address set forth in Article 26 hereof or at such other place or to such other Person as Lessor from time to time may designate in a Notice, all Base Rent, Percentage Rent and Additional Charges, during the Term, as follows:

 

(a) Base Rent : The annual sum specified in Schedule 3.1(a) (prorated for fiscal year 2004), as adjusted pursuant to Subsection 3.1(d) hereof, payable in advance in equal, consecutive monthly installments, on or before the tenth day of each calendar month of the Term (“Base Rent”); provided, however, that the first monthly payment of Base Rent shall be payable during the second calendar month of the Term, and that the first and last monthly payments of Base Rent shall be pro rated as to any partial month (subject to adjustment as provided in Sections 14.5, 15.3 and 15.5).

 

(b) Percentage Rent : For each fiscal year during the Term commencing with the fiscal year in which the Commencement Date falls and ending with the fiscal year in which the Term (including any applicable extensions) ends, Lessee shall pay percentage rent (“Percentage Rent”).

 

Percentage Rent for the applicable Fiscal Year shall be an amount equal to the applicable Annual Revenues Computation (as defined below) less an amount equal to the Base Rent paid with respect to such Fiscal Year.

 

For the purpose of the foregoing calculation:

 

The annual revenues computation (“Annual Revenues Computation”) is equal to the amount obtained by adding, for the applicable Fiscal Year, an amount equal to the sum of (i) seventeen percent (17%) of all Suite Revenues for the applicable Fiscal Year up to the applicable suite revenue breakpoint (the “Suite Revenue Breakpoint”) described in Schedule 3.1(b) , attached hereto, (prorated for the first and last Fiscal Year of the Term (including any applicable extensions)) and fifty-five percent (55%) of all Suite Revenues for the applicable Fiscal Year in excess of the applicable Suite Revenue Breakpoint. At the beginning of each Fiscal Year, the Suite Revenue Breakpoints shall be adjusted by the same percentage that the Base Rent is adjusted pursuant to Subsection 3.1(d).

 

The Percentage Rent shall be payable as follows:

 

 

(i)

with respect to each calendar month of the Term, Lessee shall pay on or before the last day of the calendar month an amount equal to the excess, if any, of (A) seventy-five percent (75%) of the amount of Lessee’s budgeted Percentage Rent payable with respect to the then current calendar month (which budgeted amount shall be equal to one-twelfth (1/12) of the annual estimate of Percentage Rent included in the

 

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Annual Budget for the Fiscal Year in which the calendar month occurs) over (B) Base Rent for such calendar month; and

 

 

(ii)

with respect to each Fiscal Year of the Term, Lessee shall pay on or before the 15th day following the end of the Fiscal Year an amount equal to the amount by which the aggregate amount of all payments pursuant to Section 3.1(b)(i) in respect of Percentage Rent for such Fiscal Year shall be less than one hundred percent (100%) of the estimated Percentage Rent included in the Annual Budget for such Fiscal Year.

 

In no event will the amount of Percentage Rent payable for any Fiscal Year or the result of any Annual Revenues Computation be less than zero, and there shall be no reduction in the Base Rent regardless of the result of any Annual Revenues Computation.

 

(c) Officer’s Certificates . On or before March 1 of each year, commencing with March 1, 2005, Lessee shall deliver to Lessor an Officer’s Certificate reasonably acceptable to Lessor setting forth the computation of the actual Percentage Rent that accrued for the Fiscal Year that ended on the immediately preceding December 31. If the annual Percentage Rent due and payable for any Fiscal Year (as shown in the applicable Officer’s Certificate) exceeds the amount actually paid as Percentage Rent by Lessee for such year, Lessee shall pay such excess to Lessor at the time such certificate is delivered. If the Percentage Rent actually due and payable for such Fiscal Year is shown by such certificate to be less than the amount actually paid as Percentage Rent for the applicable Fiscal Year, Lessor, at its option, shall reimburse such amount to Lessee or credit such amount against subsequent months’ Base Rent, and with respect to Percentage Rent, to the extent necessary, subsequent months’ Percentage Rent payments. Any such credit to Base Rent shall not be applied for purposes of calculating Percentage Rent payable for any subsequent month.

 

Any difference between the annual Percentage Rent due and payable for any Fiscal Year (as shown in the applicable Officer’s Certificate or as adjusted pursuant to Section 3.3) and the total amount of monthly payments for such Fiscal Year actually paid by Lessee as Percentage Rent, whether in favor of Lessor or Lessee, shall bear interest at the Overdue Rate, which interest shall accrue from the due date of the last monthly payment for the Fiscal Year until the amount of such difference shall be paid or otherwise discharged. Any such interest payable to Lessor shall be deemed to be and shall be payable as Additional Charges.

 

The obligation to pay Percentage Rent shall survive the expiration or earlier termination of the Term, and a final reconciliation, taking into account, among other relevant adjustments, any adjustments which are accrued after such expiration or termination date but which related to Percentage Rent accrued prior to such termination date, and Lessee’s good faith best estimate of the amount of any unresolved contractual allowances, shall be made not later than two (2) years after such expiration or termination date, but Lessee shall advise Lessor within sixty (60) days after such expiration or termination date of Lessee’s best estimate at that time of the approximate amount of such adjustments, which estimate shall not be binding on Lessee or have any legal effect whatsoever.

 

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(d) CPI Adjustments to Base Rent and Percentage Rent . For each year of the Term beginning on or after January 1, 2005, the Base Rent shall be adjusted from time to time as follows:

 

(1) If the most recently published Consumer Price Index as of the last day of the last month (the “Comparison Month”) of any Fiscal Year is different than the average Consumer Price Index for the twelve (12) month period prior thereto, the Base Rent for the next Fiscal Year shall be adjusted by the percentage change in the Consumer Price Index calculated as follows:

 

(A) The difference between the Consumer Price Index for the most recent Comparison Month and the average Consumer Price Index for the twelve (12) month period prior thereto shall be divided by the average Consumer Price Index for the twenty four (24) month period prior thereto.

 

(B) The Base Rent shall be multiplied by the lesser of (i) seven percent (7%) or (ii) the quotient obtained in subparagraph (d)(1)(A) above.

 

(C) The product obtained in subparagraph (d)(1)(B) above shall be added to the Base Rent.

 

Adjustments in the Base Rent shall be effective on the first day of the first calendar month of the Fiscal Year to which such adjusted Base Rent applies. The Suite Revenue Breakpoint then included in the Annual Revenues Computation pursuant to Subsection 3.1(b) shall be similarly adjusted, effective with any such adjustment in the Base Rent.

 

(2) If (i) a significant change is made in the number or nature (or both) of items used in determining the Consumer Price Index, or (ii) the Consumer Price Index shall be discontinued for any reason, the Bureau of Labor Statistics shall be requested to furnish a new index comparable to the Consumer Price Index, together with information which will make possible a conversion to the new index in computing the adjusted Base Rent hereunder. If for any reason the Bureau of Labor Statistics does not furnish such an index and such information, the parties will instead mutually select, accept and use such other index or comparable statistics on the cost of living in Washington, D.C. that is computed and published by an agency of the United States or a responsible financial periodical of recognized authority.

 

(e) Manager Fund-up Cure Payments . If and to the extent that Manager pays amounts to Lessee pursuant to the Management Agreement in order to avoid termination of the Management Agreement by Lessee for Manager’s failure to meet certain performance hurdles described therein, such amounts shall be treated as additional Suite Revenues for purposes of the Percentage Rent calculation hereunder.

 

(f) Allocation of Rent . The parties hereto acknowledge and agree that the Base Rent paid or payable by Lessee to Lessor hereunder shall, to the extent relevant, be allocated between the personal property and real property constituting Leased Property hereunder in direct

 

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proportion to the then recognizable fair market value of such personal property and real property. Percentage Rent in excess of Base Rent shall be allocated solely to real property.

 

3.2. Confirmation of Percentage Rent. Lessee shall utilize, or cause to be utilized, an accounting system for the Leased Property in accordance with its usual and customary practices, and in accordance with generally accepted accounting principles, that will accurately record all data necessary to compute Percentage Rent, and Lessee shall retain, for at least four (4) years after the expiration of each Fiscal Year (and in any event until the reconciliation described in Subsection 3.1(c) for such Fiscal Year has been made), reasonably adequate records conforming to such accounting system showing all data necessary to compute Percentage Rent for the applicable Fiscal Years. Lessor, at its expense (except as provided hereinbelow), shall have the right from time to time, upon prior written notice to Lessee and Manager, by its accountants or representatives to audit the information that formed the basis for the data set forth in any Officer’s Certificate provided under Subsection 3.1(d) and, in connection with such audits, to examine all Lessee’s records (including supporting data and sales and excise tax returns) reasonably required to verify Percentage Rent, subject to any prohibitions or limitations on disclosure of any such data under Legal Requirements; provided, however that Lessor may only inspect or audit records in Manager’s possession subject to the terms of Lessee’s access thereto under the Management Agreement. If any such audit discloses a deficiency in the payment of Percentage Rent, and either Lessee agrees with the result of such audit or the matter is otherwise determined or compromised, Lessee shall forthwith pay to Lessor the amount of the deficiency, as finally agreed or determined, together with interest at the Overdue Rate from the date when said payment should have been made to the date of payment thereof; provided, however, that as to any audit that is commenced more than two (2) years after the date Percentage Rent for any Fiscal Year is reported by Lessee to Lessor, the deficiency, if any, with respect to such Percentage Rent shall bear interest at the Overdue Rate only from the date such determination of deficiency is made unless such deficiency is the result of gross negligence or willful misconduct on the part of Lessee, in which case interest at the Overdue Rate will accrue from the date such payment should have been made to the date of payment thereof. If any such audit discloses that the Percentage Rent actually due from Lessee for any Fiscal Year exceed those reported by Lessee by more than three percent (3%), Lessee shall pay the cost of such audit and examination. Any proprietary information obtained by Lessor pursuant to the provisions of this Section shall be treated as confidential, except that such information may be used, subject to appropriate confidentiality safeguards, in any litigation between the parties and except further that Lessor may disclose such information to prospective lenders. The obligations of Lessee contained in this Section shall survive the expiration or earlier termination of this Lease.

 

3.3. Additional Charges. In addition to the Base Rent and Percentage Rent, (a) Lessee also will pay and discharge as and when due and payable all other amounts, liabilities, obligations and Impositions that Lessee assumes or agrees to pay under this Lease, and (b) in the event of any failure on the part of Lessee to pay any of those items referred to in clause (a) of this Section 3.3, Lessee also will promptly pay and discharge every fine, penalty, interest and cost that may be added for non-payment or late payment of such items (the items referred to in clauses (a) and (b) of this Section 3.3 being additional rent hereunder and being referred to herein collectively as the “Additional Charges”), and Lessor shall have all legal, equitable and contractual rights, powers and remedies provided either in this Lease or by statute or otherwise in the case of non-payment of the Additional Charges as in the case of non-payment of the Base Rent. If any installment of Base Rent

 

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and Percentage Rent or Additional Charges (but only as to those Additional Charges that are payable directly to Lessor) shall not be paid on its due date, Lessee will pay Lessor on demand, as Additional Charges, a late charge (to the extent permitted by law) computed at the Overdue Rate on the amount of such installment, from the due date of such installment to the date of payment thereof. To the extent that Lessee pays any Additional Charges to Lessor pursuant to any requirement of this Lease, Lessee shall be relieved of its obligation to pay such Additional Charges to the entity to which they would otherwise be due and Lessor shall pay same from monies received from Lessee.

 

3.4. Net Lease; No Termination, Abatement, Etc.

 

(a) The Rent shall be paid absolutely net to Lessor, so that this Lease shall yield to Lessor the full amount of the installments of Base Rent, Percentage Rent and Additional Charges throughout the Term, all as more fully set forth in Article 5, but subject to any other provisions of this Lease that expressly provide for adjustment or abatement of Rent or other charges or expressly provide that certain expenses or maintenance shall be paid or performed by Lessor.

 

(b) Except as otherwise specifically provided in this Lease, and except for loss of the Franchise Agreement solely by reason of any action or inaction by Lessor, Lessee, to the extent permitted by law, shall remain bound by this Lease in accordance with its terms and shall neither take any action without the written consent of Lessor (which shall not be unreasonably withheld or delayed) to modify, surrender or terminate the same, nor seek nor be entitled to any abatement, deduction, deferment or reduction of the Rent, or setoff against the Rent, nor shall the obligations of Lessee be otherwise affected by reason of (a) any damage to, or destruction of, any Leased Property or any portion thereof from whatever cause or any Taking of the Leased Property or any portion thereof, (b) the lawful or unlawful prohibition of, or restriction upon, Lessee’s use of the Leased Property, or any portion thereof, or the interference with such use by any Person other than Lessor, (c) any claim which Lessee has or might have against Lessor by reason of any default or breach of any warranty by Lessor under this Lease or any other agreement between Lessor and Lessee, or to which Lessor and Lessee are parties, (d) any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Lessor or any assignee or transferee of Lessor, or (e) for any other cause whether similar or dissimilar to any of the foregoing other than a discharge of Lessee from any such obligations as a matter of law. Lessee hereby specifically waives all rights, arising from any occurrence whatsoever, which may now or hereafter be conferred upon it by law to (1) modify, surrender or terminate this Lease or quit or surrender the Leased Property or any portion thereof, or (2) entitle Lessee to any abatement, reduction, suspension or deferment of the Rent or other sums payable by Lessee hereunder, except as otherwise specifically provided in this Lease. The obligations of Lessee hereunder shall be separate and independent covenants and agreements and the Rent and all other sums payable by Lessee hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Lease or by termination of this Lease other than by reason of an Event of Default.

 

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3.5. Material Changes in Economic Climate.

 

(a) In the event of the occurrence of a Force Majeure or a Hotel Market Decline, Lessor and Lessee shall, in good faith, negotiate possible modifications to the Base Rent and Percentage Rent to reduce such Base Rent and Percentage Rent to recent market rates for hotel REIT leases for similar hotel properties in the Hotel’s Competitive Set, retroactively effective as of the first calendar month of the Term following the last day of the six-month period during which such Hotel Market Decline has occurred with the excess of Base Rent and Percentage Rent actually paid for such period over the reduced Base Rent and Percentage Rent, plus interest thereon at the Base Rate, to be credited to the next payments of Rent due and owing hereunder. If Lessor and Lessee are unable to agree that a Force Majeure or a Hotel Market Decline has occurred, within thirty (30) days after the date of written certification from Lessee to Lessor that a Force Majeure and Hotel Market Decline has occurred (accompanied by reasonably detailed computations and documentation to support such assertion), the matter may be submitted by either party to arbitration under Section 25.2 hereof for resolution (during which period Lessee shall continue to pay Base Rent and Percentage Rent as required under Section 3.1 of this Lease). If, within ninety (90) days (during which period Lessee shall continue to pay Base Rent and Percentage Rent as required under Section 3.1 of this Lease) following the date of such written certification from Lessee (or the date of a decision of an arbitrator if required hereunder to determine that a Force Majeure and Hotel Market Decline has occurred), Lessor and Lessee are unable to agree upon the amount of reduction in Base Rent and Percentage Rent contemplated hereby, Lessee shall have the option to terminate this Lease upon not less than thirty (30) days prior written notice to Lessor.

 

(b) In the event of the occurrence of a National Economic Decline or a Regional Market Decline, Lessor and Lessee shall, in good faith, negotiate (i) possible modifications to the Base Rent and Percentage Rent to reduce such Base Rent and Percentage Rent to recent market rates for hotel REIT leases for similar hotel properties in the Hotel’s Competitive Set, and (ii) possible modifications to the Base and Percentage Rent payable under each of the Other Leases for Other Hotels in the same Region (as defined in the STR Reports) as the Hotel to reduce such Base Rent and Percentage Rent to recent market rates for hotel REIT leases for similar hotel properties in the Hotel’s Competitive Set, in each case retroactively effective as of the first calendar month of the Term following the last day of the six month period during which such Regional Market Decline has occurred with the excess of Base Rent and Percentage Rent actually paid for such period over the reduced Base Rent and Percentage Rent, plus interest thereon at the Base Rent, to be credited to the next payments of Rent due and owing hereunder. If, within thirty (30) days after the date of written certification from Lessee to Lessor that a National Economic Decline and Regional Market Decline has occurred (accompanied by reasonably detailed computations and documentation to support such assertion), Lessor and Lessee are unable to agree that a National Economic Decline or Regional Market Decline has occurred, the matter may be submitted by either party to arbitration under Section 25.2 hereof for resolution (during which period Lessee shall continue to pay Base Rent and Percentage Rent as required under Section 3.1 of this Lease). If, within ninety (90) days (during which period Lessee shall continue to pay Base Rent and Percentage Rent as required under Section 3.1 of this Lease) following the date of such initial written certification from Lessee (or the date of a decision of an arbitrator if required hereunder to determine that a National Economic Decline and Regional Market Decline has occurred), Lessor and Lessee are unable to agree upon the amount of reduction in Base Rent and Percentage Rent contemplated hereby, Lessee shall have the option, upon not less than sixty (60) days prior written

 

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notice to Lessor, to terminate all (but not less than all) of the Existing Leases of hotels in the same Region as the Hotel, including this Lease.

 

3.6. Rent Adjustment: Basic Assumptions Incorrect. Except to the extent that doing so would cause Lessor to recognize income other than “rents from real property” as defined in Section 856(d) of the Code, notwithstanding anything herein (other than Article 19) to the contrary, if (i) the facts and circumstances underlying the documented, basic assumptions upon which both Lessor and Lessee have relied in determining the Base Rent, the Suite Revenue Breakpoint, and the Percentage Rent payable hereunder become materially incorrect solely as a result of (A) a decision to re-brand the Hotel that is made after the Commencement Date, (B) the scope or cost of substantial renovations or other capital improvements to the Hotel, or (C) the implementation of any other hotel repositioning strategies (that were not planned as of the Commencement Date) resulting in significant disruption of the operations of the Hotel (collectively, a “Repositioning”), and (ii) Lessor and Lessee so agree in writing, then Lessor and Lessee shall, in good faith, negotiate modifications to the Base Rent, Suite Revenue Breakpoint and Percentage Rent to adjust (i.e., increase, decrease or reallocate among revenue categories) such Base Rent, Suite Revenue Breakpoint and Percentage Rent to reflect such change in basic assumptions for the affected periods, using the same methodology and other basic assumptions as were initially utilized in determining the Base Rent, Suite Revenue Breakpoint and Percentage Rent hereunder. If Lessor and Lessee are unable to agree, within thirty (30) days after the date of written certification from either Lessee or Lessor to the other party that a good faith dispute exists, as to the existence of the occurrence of a Repositioning or the adjustments to be made to the amounts or percentages for the Base Rent, Suite Revenue Breakpoint and Percentage Rent hereunder as a result of any repositioning, the dispute may be submitted by either party to arbitration under Section 25.2 hereof for resolution (during which period Lessee shall continue to pay Base Rent and Percentage Rent as required under Section 3.1 of this Lease); provided, however, that for purposes of applying the procedures in Section 25.3 to such arbitration, the target deadline therein for concluding the arbitration shall be shortened from ninety (90) days to thirty (30) days.

 

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ARTICLE 4

ANNUAL BUDGETS; BOOKS AND RECORDS

 

4.1. Annual Budget. Not later than thirty (30) days prior to the commencement of each Fiscal Year, Lessee shall submit the Annual Budget to Lessor. The Annual Budget shall contain the following, to the extent included in the operating budgets and capital budgets provided to Lessee by Manager under the management agreement for the Hotel:

 

(a) Lessee’s reasonable estimate of Gross Revenues (including room rates and Suite Revenues), Gross Operating Expenses, and Gross Operating Profits for the forthcoming Fiscal Year itemized on schedules on a quarterly basis as approved by Lessor and Lessee, as same may be revised or replaced from time to time by Lessee and approved by Lessor, together with the assumptions, in narrative form, forming the basis of such schedules.

 

(b) An estimate of the amounts to be dedicated to the repair, replacement, or refurbishment of Furniture and Equipment.

 

(c) An estimate of any amounts Lessor will be required to provide for required or desirable capital improvements to the Hotel or any of its components.

 

(d) A cash flow projection.

 

(e) A business plan, which shall describe business objectives and strategies for the forthcoming Fiscal Year, and shall include without limitation an analysis of the market area in which the Hotel competes, a comparison of the Hotel and its business with competitive hotels, an analysis of categories of potential guests, and a description of sales and marketing activities designed to achieve and implement identified objectives and strategies.

 

4.2. Books and Records. Lessee shall keep full and adequate books of account and other records reflecting the results of operation of the Hotel on an accrual basis, all in accordance with generally accepted accounting principles and the obligations of Lessee under this Lease. The books of account and all other records relating to or reflecting the operation of the Hotel shall be kept either at the Hotel or at Lessee’s offices in Richmond, Virginia or at Manager’s central offices, and shall be available to Lessor and its representatives and its auditors or accountants, at all reasonable times, upon prior written notice to Lessee and Manager, for examination, audit, inspection, and transcription; provided, however that Lessor may only inspect or audit records in Manager’s possession subject to the terms of Lessee’s access thereto under the Management Agreement. All of such books and records pertaining to the Hotel including, without limitation, books of account, guest records and front office records, at all times shall be the property of Lessor and shall not be removed from the Hotel or Lessee’s offices or Manager’s central offices (but may be moved among any of the foregoing) by Lessee without Lessor approval.

 

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ARTICLE 5

IMPOSITIONS; HOTEL COSTS

 

5.1. Payment of Impositions. Subject to Section 12.2 (relating to permitted contests), Lessee will pay, or cause to be paid, all Impositions (other than Real Estate Taxes and Personal Property Taxes, which shall be paid by Lessor) before any fine, penalty, interest or cost may be added for non-payment, such payments to be made directly to the taxing or other authorities where feasible, and will promptly furnish to Lessor copies of official receipts or other satisfactory proof evidencing such payments. Lessee’s obligation


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