Hotel Franchisor Comfort Letter

Summary

This template comfort letter from a franchisor of a hotel brand to the franchisee and the franchisee's lender may be used in a hotel financing transaction when the hotel is subject to a franchise agreement. This template includes practical guidance and drafting notes. The majority of hotel transactions involve properties branded (or flagged) with one or more of the large franchised brands. A franchisee's lender is always concerned that the loss of the hotel's flag will diminish the value of the hotel as collateral for the lender's loan and will want to ensure that it has the option of keeping the brand in place following a foreclosure despite the language of the hotel franchise agreement that would permit a termination in such event. Because of these concerns, a lender providing financing that is secured by a hotel property subject to a hotel franchise agreement will always require, as a condition of the loan closing, that the franchisor enter into a comfort letter with the lender. A comfort letter grants certain notice and cure rights to the lender in the event of the franchisee's default and, at least in theory, provides assurance to the lender that despite the standard language in the hotel franchise agreement, the lender will be able to exercise its foreclosure remedy if necessary but still be able to retain the brand. Comfort letters are usually drafted by the hotel franchisor on their standard form and are not highly negotiable. This template does not favor either party and includes drafting notes from the both the franchisor's and the lender's perspectives. This template contains references to number of days, dollar amounts, and percentages. These numbers are merely recommendations and may be negotiated by the parties. For more information on comfort letters see Hotel Franchise Agreements.