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.
