Property Improvement Plan – As a requirement for branding or re-branding a hotel, a Property

Improvement Plan (PIP) will be required to bring the hotel in compliance with brand standards. A PIP
may include upgrades to life safety, furnishings, fixtures and equipment – all of which will be subject
to the prior approval of the brand. The scope and timing for completion of a PIP will be a negotiated
point for any franchise deal, particularly in a down market. In a difficult market such as now, you may
want more time to secure your financing or complete improvements.

Early Termination, Default and Liquidated Damages – If your goal is to sell the hotel in a short
period of time it is important to have the right to terminate the franchise agreement prior to expiration.
The early termination or breach of the franchise agreement will typically result in the payment of
liquidated damages by the franchisee. The amount of liquidated damages may be subject to negotiation.
Also consider requesting some relief from payment of liquidated damages upon a default or failure to
meet certain conditions if the default or failure is due to circumstances outside of your control such as
market conditions, the inability to finance a PIP or governmental delays.

Assignment and Transfer – The importance of the right to assign the franchise agreement depends
upon whether your goal is to hold the hotel for a long time or to sell it within a relatively short period
and assign the franchise agreement. At a minimum, most franchisees should seek the ability to transfer
the franchise agreement to an affiliated company or to family members for flexibility.

Trade Area Restriction – There is an implied covenant of good faith and fair dealing which prohibits a
franchisor from opening or granting a license to a competing business proximate to the franchisee’s
business, however, it is better for both the franchisor and franchisee to agree upon a specific geographic
area and time period for this restriction. The restriction should include a sufficient period of time for
the franchisor’s hotel to ramp up and reach stabilization or an agreed level of occupancy before a
competing hotel of the same brand is introduced into the market. (In most franchise agreements any
restriction will be limited to the specific brand and will not apply to any other brands controlled by the
franchisor).

Comfort Letters – A comfort letter is a letter from the franchisor to the lender assuring the lender that
in the event of a foreclosure the franchise agreement will stay in place provided the lender or
subsequent owner satisfies certain requirements. This provides the lender “comfort” that it will retain
the value the brand brings to its collateral. Some franchisors will charge a fee for comfort letters which
can be negotiated up front.