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Hotel Lease Agreements - End of Term?

16 September 2010
Mayer Brown Article

In the early 1990s in the aftermath of Germany’s reunification the hotel investment market witnessed the emergence of numerous new hotels many of which were let to (global and local) chain operators.  The statistics speak for themselves: Between 1985 to 1994 the number of branded hotels in Germany increased from 224 to 669.

Most of these hotels have been let under lease agreements for a fixed duration of 20 to 25 years.  In light of the impending lease term expiry the future of many of these hotels is uncertain:

A significant number of such hotels have not seen any material investments or refurbishments in recent years and therefore no longer meet international hotel standards.  As an example, there are still several hotels in the 4 star category without even air-conditioning.

Due to this significant backlog of investments and refurbishments the market expects that the big hotel chains will extensively terminate/ not renew their existing lease agreements in order to readjust their portfolio.  For example in early 2010 Mövenpick announced not to renew its lease agreements in Stuttgart (trade fair), Lübeck, Neu-Ulm and Kassel.

Our impression is that many hotel property owners have not done their “homework” in order to secure the future of the expiring lease agreements.  In our experience, owners should initiate discussions with the tenant or operator at least two years in advance before the lease expires so as to identify the future requirements and negotiate the necessary financing.  A good example is, according to recent press articles, the lease agreement for the Steigenberger Park Hotel in Düsseldorf which has been renewed by the operator who is willing to pay the refurbishment costs of EUR 10 Million.

We expect that many hotel property owners facing expiring lease agreements will not have the financing in place necessary to secure these leases for the future and will therefore be looking for short-term exits.  This scenario offers international investors interesting investment opportunities.

For enquiries related to this Legal Update, please contact:
Jürgen Streng ( )
Joachim Modlich ( )

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