Owner Agreement



  
 Exhibit 10.12 
  
 OWNER AGREEMENT 
 (Houston, Texas) 
  
 THIS OWNER AGREEMENT (“Agreement”) made and entered into as of the 3rd day of January, 2003, by and among
AHF HOUSTON WESTCHASE LIMITED PARTNERSHIP, a Virginia limited partnership, with a mailing address of 10 South Third Street, Richmond, Virginia 23219 (“Lessor”); AHF SERVICES LIMITED PARTNERSHIP, a Virginia
limited partnership, with a mailing address of 10 South Third Street, Richmond, Virginia 23219 (“Lessee”); and RESIDENCE INN BY MARRIOTT, INC., a Delaware corporation, with a mailing address of 10400 Fernwood Road,
Bethesda, MD 20817 (“Manager”). 
  
 RECITALS: 
  
 WHEREAS, pursuant to that certain Purchase Contract (the “Sale Agreement”) dated as of December 18, 2002,
between Westel Properties II, LTD., a Texas limited partnership, as Seller (“Seller”), and Apple Suites Realty Group, Inc., a Virginia corporation, as Buyer (“Buyer”), Lessor, as Buyer’s assignee
under the Sale Agreement, has acquired, or is about to acquire, fee simple title to the Residence Inn by Marriott hotel, located in Houston, Texas, as more particularly described on Exhibit A attached to this Agreement and incorporated
herein (“Inn”). 
  
 WHEREAS, upon Lessor’s acquisition of the Inn, Lessor has
leased the Inn to Lessee, and Lessee has leased the Inn from Lessor, pursuant to that certain lease attached hereto as Exhibit B (the “Lease”). 
  
 WHEREAS, Manager has operated and managed the Inn pursuant to that certain Inn Management Agreement bearing an effective date as of April 8, 1996, as amended by that
certain First Amendment to Management Agreement dated as of October 8, 1997, and as further amended by that certain Letter Agreement dated as of September 29, 1999, as assigned, assumed and amended pursuant to that certain Assignment, Assumption and
Amendment Agreement of even date herewith by and among Seller, Lessee and Manager (said Management Agreement, as so assigned, assumed and amended, hereinafter the “Management Agreement”). 
  
 WHEREAS, Manager has consented to the sale and transfer of the Inn and the assignment by Seller to Lessee of the Management
Agreement, subject to, among other things: (i) Lessor guarantying the obligations of Lessee under the Management Agreement; (ii) Lessor agreeing to grant certain protections to Manager in the event the Lease is terminated for any reason; and (iii)
Lessee meeting certain criteria, the satisfaction of which is confirmed by the execution of this Agreement. 
  
 NOW, THEREFORE, for the mutual covenants and considerations herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto intending to be
legally bound agree as follows: 

 








  
 1.    Definitions.  Capitalized terms
not specifically defined herein shall have the meaning given to them in the Management Agreement. 
  
 2.    Lessor Consideration.  Lessor hereby acknowledges that: (i) Lessor derives and expects to derive benefits from this Agreement, and (ii) Lessor has determined that Lessor’s
execution, delivery and performance of this Agreement directly benefit Lessor, are within the corporate purposes of Lessor, and are in the best interest of Lessor. 
  
 3.    Acknowledgement of Lease.  Manager hereby acknowledges and consents to the lease of the Inn from Lessor to Lessee pursuant
to the Lease in the form attached hereto as Exhibit B. The Lease shall not be construed to impose any additional obligations or liabilities upon Manager, and shall not be construed to modify or amend any of the rights and duties of the
parties under the Management Agreement. To the extent that any of the provisions of the Management Agreement impose a greater or inconsistent obligation on Lessee than the corresponding provisions of the Lease, then Lessee shall be obligated to
comply with, and to take all actions necessary to prevent breaches or defaults by Lessee under, the relevant provisions of the Management Agreement. 
  
 Manager acknowledges that Lessor and Lessee have, pursuant to the terms of the Lease, agreed that Lessor shall pay, among other things (i) land and building taxes and assessments applicable to the Inn,
(ii) premiums and charges for the casualty insurance-coverages specified in the Management Agreement, (iii) expenditures for capital replacements, (iv) expenditures for maintenance and repair of underground utilities and structural elements of the
Inn and (v) the payments of principal, interest and other sums payable under any Mortgage. Notwithstanding the foregoing, it is understood and agreed by Lessor and Lessee that Manager shall have no duty, obligation or liability to Lessor or Lessee
(i) to make any determination as to whether any expense paid or payable by Manager under the Management Agreement is a cost to be paid by Lessor under the Lease (“Lessor Cost”) or a cost to
be paid by Lessee under the Lease (“Lessee Cost”), or (ii) to pay costs identified as Lessor Costs out of funds which can be identified as belonging to Lessor, or pay Lessee Costs out of funds which can be identified as
belonging to Lessee; it being the intent of the parties to this Agreement that (x) Lessee and Lessor shall look only to each other and not to Manager with respect to moneys that may be owed one to the other under the Lease and (y) Manager need only
look to Lessee to pay and satisfy all of the obligations of “Owner” under the Management Agreement. 
  
 4.    Lessor and Lessee Representations and Warranties.  Lessor and Lessee each hereby represents and warrants that Apple Hospitality Five, Inc., a Virginia corporation
(“Apple Five”), currently holds, directly or indirectly, a one-hundred percent controlling interest in both Lessor and Lessee. 
  
 5.    Termination of the Lease.  The parties agree that the Management Agreement and the rights and benefits of Manager thereunder shall not be terminated or
disturbed in any respect except in accordance with the terms of the Management Agreement, and not as a result of any termination of the Lease. Accordingly, if the Lease is terminated for any reason, including, without limitation, expiration of the
term thereof or the “rejection” thereof following Bankruptcy 

 
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 (as defined below) of Lessee (collectively, a “Lease Termination”), Lessor: (a)
shall recognize Manager’s rights under the Management Agreement, (b) agrees that Manager shall not be named by Lessor or any affiliate of Lessor as a party in any eviction or other possessory action or proceeding, and that Manager shall not be
disturbed in its right to manage the Inn pursuant to the Management Agreement by Lessor or any affiliate of Lessor, and (c) shall at the time of or prior to such Lease Termination either (i) elect not to take either of the actions described in
clause (c)(ii) below, in which case all of “Lessee’s” rights, benefits, privileges and obligations under the Management Agreement with respect to periods after the Lease Termination shall be assumed directly by Lessor, or (ii) cause
an “Approved Lessee” (as defined below) to (x) succeed to and assume Lessee’s rights and obligations under the Lease, the Management Agreement, and this Agreement, or (y) enter into a new lease with an Approved Lessee in substantially
the same form as the Lease, and cause such Approved Lessee to assume the rights and obligations of the Lessee under the Management Agreement and this Agreement, the intent being that the relationship between any successor Lessee, Lessor and Manager
be under the same terms and conditions as the relationship between Lessee, Lessor and Manager hereunder and under the Management Agreement and the Lease. Any successor to Lessee under clause (c)(ii) above shall be subject to Manager’s prior
written approval, which approval shall not be withheld or delayed if such successor to Lessee is (i) a direct or indirect wholly-owned subsidiary of Apple Five, or (ii) a person or entity to whom a Sale of the Inn is permitted under the Management
Agreement (an “Approved Lessee”). 
  
 6.    Guaranty.  Lessor shall be liable for the complete and satisfactory payment and performance of each and every obligation of Lessee as “Owner” under the Management Agreement
(the “Guarantied Obligations”). Lessor hereby absolutely, irrevocably, and unconditionally guaranties that the Guarantied Obligations which are monetary obligations shall be paid when due and payable and that the Guarantied
Obligations which are performance obligations shall be fully performed at the times and in the manner such performance is required by the Management Agreement. This guaranty is an absolute, irrevocable, and unconditional guaranty of payment and
performance and the liability of Lessor hereunder shall be absolute and unconditional irrespective of: (i) any lack of validity, irregularity or enforceability of the Management Agreement or this Agreement; (ii) any change in the time, manner, place
or any other term or condition of payments due under the Management Agreement or this Agreement, or any other amendment or waiver of, or consent to, any departure from the Management Agreement or this Agreement; (iii) any failure of Manager to
enforce the provisions of the Management Agreement or this Agreement against Lessee; or (iv) any other circumstances which might otherwise constitute a defense available to, or a discharge of, any of the Guarantied Obligations (other than because,
or to the extent, the same have been previously discharged in accordance with the terms of the Management Agreement). If all or any part of the Guarantied Obligations shall not have been paid when due and payable or performed at the time performance
is required, Lessor (without first requiring the Manager to proceed against Lessee or any other party or any other security) shall pay or cause to be paid to Manager the amount thereof as is then due and payable and unpaid (including interest and
other charges, if any, due thereon through the date of payment in accordance with the applicable provisions of the Management Agreement) or perform or cause to be performed such obligations in accordance with the Management Agreement, within ten
(10) business days after receipt of written notice from the Manager of the failure by Lessee to make such payment or render such performance; 

 
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 provided, however, that, notwithstanding the foregoing, Lessor shall have the right, in connection with
a demand by Manager for payment or performance by Lessor of the Guaranteed Obligations, to assert any defenses or claim of Lessee under the Management Agreement with respect to such Guaranteed Obligations. If for any reason Lessor fails to perform
or cause to be performed such obligations, Manager shall have the right to exercise any and all of the remedies available at law or in equity and Lessor hereby agrees to pay any and all reasonable expenses (including counsel fees and expenses)
incurred by Manager in enforcing its rights under this Agreement. The guaranty contained in this Agreement: (i) is a continuing guaranty and shall remain in full force and effect until the indefeasible satisfaction and discharge in full of
Lessee’s obligations as “Owner” under the Management Agreement and Lessor’s and Lessee’s obligations under this Agreement, and (ii) shall continue to be effective or shall be reinstated, as the case may be, if at any time
any payment under the Management Agreement or this Agreement becomes unrecoverable from Lessor or Lessee by operation of law or for any other reason or must otherwise be returned by Manager upon the insolvency, bankruptcy or reorganization of Lessor
or Lessee. 
  
 7.    Obligation to Terminate Lease Upon Lessee Default under Management
Agreement.  Upon receiving a written request from Manager to do so (and provided that Manager has sent to Lessor a notice as described in Section 6 above with respect to the applicable Default), Lessor shall terminate the Lease if
a Default by Lessee has occurred, after the expiration of any applicable cure period for the Default therein, under the Management Agreement. In terminating the Lease pursuant to this Section 7, Lessor shall issue its notice of termination to Lessee
promptly following its receipt of Manager’s request therefor. Lessor shall thereafter promptly initiate, and thereafter diligently and continuously prosecute, such actions as may be required to confirm such Lease termination and repossess the
Inn, including, without limitation, instituting such legal action as may be necessary to accomplish same. Upon Lessor’s termination of the Lease in accordance with this Section 7, Lessor shall thereupon be obligated to comply with the
provisions of Section 5 applicable upon a Lease Termination. 
  
 8.    Agreements Relating
to Tenancy.  In order to address the fact that Lessee’s interest in the Inn is leasehold, and to address certain other related matters, the parties agree to the following modifications of the Management Agreement, to be
effective for so long as Lessee’s interest in the Inn is held through tenancy or subtenancy title as that of Lessee: 
  
 A.    Subject to the terms of the Management Agreement, Lessor and Lessee covenant and agree, and Manager acknowledges, that: (i) Lessor holds, and shall have, keep and maintain throughout the term of the
Management Agreement, good and marketable fee title to the Inn; and (ii) Lessee holds, and shall have, keep and maintain throughout the term of the Management Agreement, leasehold title to the Inn, in each case free and clear of any and all liens,
encumbrances or other charges, except to the extent specifically permitted under the Management Agreement. 
  
 B.    Modifying the provisions of Section 10.02 of the Management Agreement, Lessor and Lessee agree that the term “Sale of the Inn” shall also mean and include (i) any sale, assignment, transfer or
other disposition of Lessor’s title to the Inn or Site and/or of a controlling interest in Lessor, to the same extent as if Lessor were the “Owner” under the Management 

 
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 Agreement, (ii) any assignment of the Lease by Lessee, and (iii) any sublease of the Inn, or any
substantial portion thereof, by Lessee. Lessor and Lessee agree that, inter alia, an agreement in form and substance similar to this Agreement will be required from any assignee of the Lease or sublessee of the Inn in order to ensure that
Manager will incur no greater risk of loss, liability or cost in respect of, and no greater risk of termination of, the Management Agreement as a result of such sale, lease, sublease, assignment or transfer.  
  
 C.    If Lessor hereafter encumbers all or any portion of the Inn with a Mortgage (“Fee
Mortgage”), the provisions related to a First Mortgage under Sections 8.01 and 8.02 of the Management Agreement shall be applicable to the Fee Mortgage (i) to account for the fact that Lessor (rather than Lessee) has encumbered the Inn
with such Fee Mortgage, and (ii) to provide that the parties’ rights and obligations under the non-disturbance provisions in Section 8.02, as applicable, apply to both the Management Agreement and this Agreement. 
  
 9.    Additional Lessor Obligations.  Lessor agrees, where applicable, upon request by
Manager, not to unreasonably withhold, condition or delay the prompt signing, without charge, of applications for licenses, permits or other instruments necessary for operation of the Inn, which applications shall be prepared by Manager as necessary
from time to time. 
  
 10.    Certain Provisions Regarding
Bankruptcy.  In the event the Lease shall be rejected (“Rejection”) on behalf of Lessor under Section 365 of the United States Bankruptcy Code (“Code”) or any other applicable law or
authority in connection with a bankruptcy or other such proceeding under the Code or other applicable law or authority (“Bankruptcy”), Lessee shall promptly notify Manager in writing of such Rejection and Lessee shall, as
directed by Manager, either treat the Lease as terminated by such Rejection or retain its rights under the Lease as permitted by the Code or other applicable law or authority. In the event the Management Agreement is terminated as a result of
Rejection on behalf of Lessee, the Management Agreement will remain effective with respect to Lessor, and Lessor shall, if directed by Manager (but only to the extent such right may be exercised under the Code or other applicable law and authority),
terminate the Lease, subject to the provisions of Section 5 hereof. Lessor and Lessee each agree that it will not join in any involuntary petition against the other under the Code or any other similar federal or state law providing for debtor
relief, without the consent of Manager. 
  
 11.    Term.  The term
of this Agreement shall commence on the date set forth above and shall run concurrently with the term of the Management Agreement. 
  
 12.    Required Assignment.  In connection with any Sale of the Inn which includes a transfer of Lessor’s and/or Lessee’s title in the Inn, Lessor and Lessee agree that
the successors to their respective titles in the Inn shall also assume their respective rights and obligations under this Agreement from and after the effective date of such Sale of the Inn and shall cause such successor(s) to assume such rights and
obligations pursuant to an assumption of this Agreement reasonably acceptable to Manager. 
  
 13.    Notices.  All notices and other communications provided for hereunder shall be in writing, and shall be sent or delivered by the methods as required under the Management


 
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 Agreement and to the addresses for Lessee and Manager as provided in the Management Agreement and to
Lessor at the following address: 
  
 AHF Services Limited Partnership 
 10 South Third Street 
 Richmond, Virginia 23219 
 Attn:    Glade M. Knight, President 
 Fax:      (804) 344-8129 
  
 Lessor may change its address for notice hereunder by providing
notice of such change to both Lessee and Manager in the manner required under the Management Agreement. 
  
 14.    Eligible Independent Contractor.  Manager agrees that, as of the date hereof, it is an eligible independent contractor under Section 856(d) of the Internal Revenue Code, and further
agrees that it shall maintain such status to the extent it is able to do so, acknowledging that events outside of Manager’s control may result in an overlap of ownership between Manager and Lessor or Lessee which could affect Manager’s
independent contractor status. Lessor, Manager and Lessee agree to cooperate in good faith to ensure that Manager retains such status. This covenant shall apply for so long as the Inn is owned by Lessor and leased to Lessee (or another direct or
indirect wholly-owned subsidiary of Apple Five pursuant to a permitted assignment). 
  
 15.    Miscellaneous. 
  
 A.
    Modification of this Agreement.  No amendment, modification, alteration or waiver of any provision of this Agreement shall be effective unless it is in writing and signed by the party against whom
enforcement of such amendment is sought, and no waiver of any provision of this Agreement by any party hereto, and no consent to any departure therefrom by any party hereto, shall be effective unless it is in writing and signed by the party against
whom enforcement of such waiver or consent is sought, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 
  
 B.     No Waiver.  No failure by any party hereto to exercise, and no delay in exercising, any right under the Management
Agreement or this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude any other or further exercise thereof or the exercise of any other right. 
  
 C.     Remedies Cumulative.  The rights and remedies of any party hereto provided in the
Management Agreement and this Agreement are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law or equity. 
  
 D.     Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland. 

 
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 E.    Severability.  The invalidity,
illegality or unenforceability of any one or more phrases, sentences, clauses or sections contained in this Agreement shall not affect the validity, legality or enforceability of the remaining portions of this Agreement. 
  
 F.    Entire Agreement.  This Agreement, together with the Management Agreement and the Lease,
constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties hereto with respect to the subject matter hereof. 
  
 G.    Successors and Assigns.  The parties hereto shall not assign or transfer or permit the assignment or transfer of this
Agreement without the prior written consent of the other parties hereto, except that Lessee and Manager shall each have the right and obligation to assign its respective interest in this Agreement to any party to which its respective interest in the
Management Agreement may be assigned under the terms of the Management Agreement, and Lessor shall have the right and obligation to assign its interest in this Agreement to any party to which its interest in the Inn may be assigned, subject to the
requirements of the Management Agreement. 
  
 H.    Captions.  The
captions and headings of the sections and subsections of this Agreement are for purposes of convenience and reference only and shall not limit or otherwise affect the meaning hereof. 
  
 I.      Time of the Essence.  Time shall be of the essence in the performance of this Agreement. 

 
 J.      Incorporation of Recitals.  The recitals hereto are incorporated
herein as part of this Agreement. 
  
 K.    Counterparts.  This
Assignment may be executed in counterparts, each of which, taken together with the others, shall constitute the original. The executed counterparts may be delivered by facsimile transmission and such delivery shall be effective to bind the party so
delivering its executed counterpart upon such party’s receipt of an executed counterpart, either by facsimile transmission or otherwise, from the other party. Each party agrees to provide hard copy originals of its executed counterparts to the
other party promptly following the exchange of facsimile copies as aforesaid. 
  
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 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
under seal as of the date first written above. 
  
  
  
 
	 LESSOR:
 
	 
	 AHF HOUSTON WESTCHASE LIMITED

 PARTNERSHIP,
 a Virginia limited partnership
 
	 
	 By:
 	 	     AFH Houston Westchase GP, Inc.,
     its General Partner
 
	 
	  	 	     By: /s/ GLADE M.
KNIGHT            [SEAL]
 

	  	 	     Name: Glade M. Knight
 
	  	 	     Title: President
 

 
  
  
 
	 LESSEE:
 
	 
	 AHF SERVICES LIMITED PARTNERSHIP,
 a Virginia limited partnership
 
	 
	 By:
 	 	     AFH Services General, Inc., its General Partner
 
	 
	  	 	     By: /s/ GLADE M.
KNIGHT            [SEAL]
 

	  	 	     Name: Glade M. Knight
 
	  	 	     Title: President
 

 
  

 
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	 MANAGER: 
 
	 
	 RESIDENCE INN BY MARRIOTT, INC.,
 a Delaware corporation
 
	 
	 By:
 	 	 /s/ JOEL M.
EISEMANN                  [SEAL]
 

	 Name:
 	 	 Joel M. Eisemann
 
	 Title:
 	 	 Vice President
 

 
  

 
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