SINGAPORE (July 10): Eagle Hospitality Trust’s manager has made several announcements this year on various agreements that its sponsor Urban Commons has defaulted on. Among them are non-disturbance agreements and key money agreements.
Non-disturbance agreement is an agreement between a tenant (or lessee) and the landlord’s (or lessor’s) lender to ensure the tenant will remain in possession of the leased property, despite any foreclosure action against the landlord. In such circumstances, the tenant may pay rent directly to the lender.
EHT’s problems came to light when EHT defaulted on a US$341 million loan, announced on March 24 this year, because Urban Commons failed to pay master lease rents.
Key money, according to Norton Rose Fulbright, is an upfront payment by a hotel operator or franchisor to a hotel owner to secure entering into a hotel management agreement or franchise agreement. Key money is repaid by owners via burn-off or amortisation by which the owner’s obligation to repay key money is waived on a pro rata basis over the period of the hotel management agreement (HMA).
In the case of EHT, the master lessees (for example, Urban Commons) of three Denver hotels failed to pay key money under the HMAs demanded by the hotel managers.
