<PAGE>

                                                                    EXHIBIT 10.7



                             HOTEL LEASE AGREEMENT

                          DATED AS OF APRIL 26, 2001

                                    BETWEEN

                              APPLE SUITES, INC.,
                            A VIRGINIA CORPORATION

                                   AS LESSOR

                                      AND

                         APPLE SUITES MANAGEMENT, INC.
                            A VIRGINIA CORPORATION

                                   AS LESSEE
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                               TABLE OF CONTENTS
                               -----------------

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                                                                                                                  PAGE

<S>                                                                                                               <C>
ARTICLE 1 LEASED PROPERTY; OTHER DEFINITIONS.....................................................................   1
   1.1.  Leased Property.........................................................................................   1
   1.2.  Definitions.............................................................................................   2

ARTICLE 2 TERM; TERMINATION......................................................................................  14
   2.1.  Term....................................................................................................  14
   2.2.  Lessor's Option to Terminate Lease......................................................................  15
   2.3.  Transition Procedures...................................................................................  16
   2.4.  Holding Over............................................................................................  17

ARTICLE 3 RENT; RENT ADJUSTMENTS.................................................................................  17
   3.1.  Rent....................................................................................................  17
   3.2.  Confirmation of Percentage Rent and Sundry Rent.........................................................  21
   3.3.  Additional Charges......................................................................................  22
   3.4.  Net Lease; No Termination, Abatement, Etc...............................................................  22
   3.5.  Material Changes in Economic Climate....................................................................  23
   3.6.  Rent Adjustment:  Basic Assumptions Incorrect...........................................................  24

ARTICLE 4 ANNUAL BUDGETS; BOOKS AND RECORDS......................................................................  25
   4.1.  Annual Budget...........................................................................................  25
   4.2.  Books and Records.......................................................................................  26

ARTICLE 5 IMPOSITIONS; HOTEL COSTS...............................................................................  26
   5.1.  Payment of Impositions..................................................................................  26
   5.2.  Notice of Impositions...................................................................................  27
   5.3.  Adjustment of Impositions...............................................................................  27
   5.4.  Utility Charges.........................................................................................  27
   5.5.  Insurance Premiums......................................................................................  27
   5.6.  Franchise Fees..........................................................................................  27
   5.7.  Ground Rent.............................................................................................  27

ARTICLE 6 LEASED PROPERTY; LESSEE'S PERSONAL PROPERTY............................................................  28
   6.1.  Ownership of the Leased Property........................................................................  28
   6.2.  Lessee's Personal Property..............................................................................  28
   6.3.  Lessor's Lien...........................................................................................  28
   6.4.  Lessor's Option to Purchase Assets of Lessee............................................................  29

ARTICLE 7 CONDITION AND USE OF LEASED PROPERTY...................................................................  29
   7.1.  Condition of the Leased Property........................................................................  29
   7.2.  Use of the Leased Property..............................................................................  29
   7.3.  Lessor to Grant Easements, Etc..........................................................................  30

ARTICLE 8 LESSEE'S COMPLIANCE WITH LAW; ENVIRONMENTAL COVENANTS..................................................  31
   8.1.  Compliance with Legal and Insurance Requirements, Etc...................................................  31
   8.2.  Legal Requirement Covenants.............................................................................  31
   8.3.  Environmental Covenants.................................................................................  32

ARTICLE 9 MAINTENANCE AND REPAIRS; ENCROACHMENTS AND RESTRICTIONS................................................  34
   9.1.  Maintenance and Repairs.................................................................................  34
   9.2.  Encroachments, Restrictions, Etc........................................................................  35
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<S>                                                                                                                <C>
ARTICLE 10 ALTERATIONS AND IMPROVEMENTS; FF&E RESERVE............................................................  36
   10.1.    Alterations..........................................................................................  36
   10.2.    Salvage..............................................................................................  36
   10.3.    Joint Use Agreements.................................................................................  36
   10.4.    Initial Upgrade of Leased Improvements...............................................................  37
   10.5.    Furniture, Fixture and Equipment Allowance...........................................................  37

ARTICLE 11 COMPLIANCE WITH FRANCHISE.............................................................................  37
   11.1.    Compliance with Franchise Agreement and Management Agreement.........................................  37

ARTICLE 12 PERMITTED LIENS AND CONTESTS..........................................................................  38
   12.1.    Liens................................................................................................  38
   12.2.    Permitted Contests...................................................................................  38

ARTICLE 13 INSURANCE REQUIREMENTS................................................................................  39
   13.1.    General Insurance Requirements.......................................................................  39
   13.2.    Replacement Cost.....................................................................................  40
   13.3.    Waiver of Subrogation................................................................................  41
   13.4.    Form Satisfactory, Etc...............................................................................  41
   13.5.    Increase in Limits...................................................................................  41
   13.6.    Blanket Policy.......................................................................................  42
   13.7.    No Separate Insurance................................................................................  42
   13.8.    Reports On Insurance Claims..........................................................................  42

ARTICLE 14 CASUALTY INSURANCE PROCEEDS; RECONSTRUCTION...........................................................  42
   14.1.    Insurance Proceeds...................................................................................  42
   14.2.    Reconstruction in the Event of Damage or Destruction Covered by Insurance............................  43
   14.3.    Reconstruction in the Event of Damage or Destruction Not Covered by Insurance........................  44
   14.4.    Lessee's Property....................................................................................  44
   14.5.    Abatement of Rent....................................................................................  44
   14.6.    Damage Near End of Term..............................................................................  44
   14.7.    Waiver...............................................................................................  44

ARTICLE 15 CONDEMNATION; AWARD ALLOCATION........................................................................  45
   15.1.    Definitions..........................................................................................  45
   15.2.    Parties' Rights and Obligations......................................................................  45
   15.3.    Total Taking.........................................................................................  45
   15.4.    Allocation of Award..................................................................................  45
   15.5.    Partial Taking.......................................................................................  45
   15.6.    Temporary Taking.....................................................................................  46

ARTICLE 16 DEFAULT BY LESSEE; LESSOR'S REMEDIES..................................................................  46
   16.1.    Events of Default....................................................................................  46
   16.2.    Surrender............................................................................................  48
   16.3.    Damages..............................................................................................  48
   16.4.    Waiver...............................................................................................  49
   16.5.    Application of Funds.................................................................................  49
   16.6.    Lessor's Right to Cure Lessee's Default..............................................................  49

ARTICLE 17 DEFAULT BY LESSOR; LESSEE'S REMEDIES..................................................................  50
   17.1.    Breach by Lessor.....................................................................................  50
   17.2.    Lessee's Right to Cure...............................................................................  50
   17.3.    Provisions Relating to Purchase of the Leased Property by Lessee.....................................  51
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<S>                                                                                                                <C>
ARTICLE 18 INDEMNIFICATION.......................................................................................  51
   18.1.    Indemnification......................................................................................  51

ARTICLE 19 REIT REQUIREMENTS AND RESTRICTIONS....................................................................  52
   19.1.    Personal Property Limitation.........................................................................  52
   19.2.    Sublease Rent Limitation.............................................................................  52
   19.3.    Sublease Tenant Limitation...........................................................................  53
   19.4.    Lessee Ownership Limitations.........................................................................  53
   19.5.    Lessee Officer and Employee Limitation...............................................................  53
   19.6.    Payments to Affiliates of Lessee.....................................................................  53

ARTICLE 20 SUBLETTING AND ASSIGNMENT.............................................................................  53
   20.1.    Subletting and Assignment............................................................................  53
   20.2.    Attornment...........................................................................................  54
   20.3.    Conveyance by Lessor.................................................................................  54

ARTICLE 21 QUIET ENJOYMENT; RISK OF LOSS.........................................................................  54
   21.1.    Quiet Enjoyment......................................................................................  54
   21.2.    Risk of Loss.........................................................................................  55

ARTICLE 22 LESSOR MORTGAGES; SUBORDINATION OF LEASE..............................................................  55
   22.1.    Lessor May Grant Liens...............................................................................  55
   22.2.    Subordination of Lease...............................................................................  55

ARTICLE 23 ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS; INSPECTION RIGHTS........................................  56
   23.1.    Estoppel Certificates; Financial Statements..........................................................  56
   23.2.    Lessor's Right to Inspect............................................................................  57

ARTICLE 24 APPRAISERS............................................................................................  57
   24.1.    Appraisers...........................................................................................  57

ARTICLE 25 ARBITRATION AND DISPUTE RESOLUTION PROCEDURES.........................................................  58
   25.1.    Arbitration..........................................................................................  58
   25.2.    Alternative Arbitration..............................................................................  58
   25.3.    Arbitration Procedure................................................................................  58

ARTICLE 26 NOTICES...............................................................................................  59
   26.1.    Notices..............................................................................................  59

ARTICLE 27 MISCELLANEOUS.........................................................................................  59
   27.1.    No Waiver............................................................................................  59
   27.2.    Remedies Cumulative..................................................................................  59
   27.3.    Waiver of Trial by Jury..............................................................................  60
   27.4.    Acceptance of Surrender..............................................................................  60
   27.5.    No Merger of Title...................................................................................  60
   27.6.    Waiver of Presentment, Etc...........................................................................  60
   27.7.    Action for Damages...................................................................................  60
   27.8.    Lease Assumption in Bankruptcy Proceeding............................................................  60
   27.9.    Enforceability.......................................................................................  60
   27.10.   Memorandum of Lease..................................................................................  61
</TABLE>

                                      iii
<PAGE>

Exhibit A - Legal Description
Exhibit B - Work Letter
Schedule 3.1(b) - Suite Revenue Breakpoint

                                      iv
<PAGE>

                             HOTEL LEASE AGREEMENT

     THIS HOTEL LEASE AGREEMENT (hereinafter called "Lease"), made as of the
26th day of April, 2001, by and between Apple Suites, Inc., a Virginia
corporation (hereinafter called "Lessor"), and Apple Suites Management, Inc., a
Virginia corporation (hereinafter called "Lessee"), provides as follows:

                                  AGREEMENT:
                                  ----------

     Lessor, for and in consideration of the payment of rent by Lessee to
Lessor, the covenants and agreements to be performed by Lessee, and upon the
terms and conditions hereinafter stated, does hereby rent and lease unto Lessee,
and Lessee does hereby rent and lease from Lessor, the Leased Property.

                                   ARTICLE 1
                                   ---------
                      LEASED PROPERTY; OTHER DEFINITIONS

     1.1. Leased Property. The Leased Property shall mean and is comprised of
          ---------------
Lessor's interest in the following:

          (a) the land described in Exhibit A attached hereto and by reference
incorporated herein (the "Land");

          (b) all buildings, structures and other improvements of every kind
including, but not limited to, alleyways and connecting tunnels, sidewalks,
utility pipes, conduits and lines (on-site and offsite), parking areas and
roadways appurtenant to such buildings and structures presently situated upon
the Land (collectively, the "Leased Improvements");

          (c) all easements, rights and appurtenances relating to the Land and
the Leased Improvements;

          (d) all equipment, machinery, fixtures, and other items of property
required for or incidental to the use of the Leased Improvements as a hotel,
including all components thereof, now and hereafter permanently affixed to or
incorporated into the Leased Improvements, including, without limitation, all
furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution control, waste
disposal, air-cooling and air-conditioning systems and apparatus, sprinkler
systems and fire and theft protection equipment, all of which to the greatest
extent permitted by law are hereby deemed by the parties hereto to constitute
real estate, together with all replacements, modifications, alterations and
additions thereto (collectively, the "Fixtures");

          (e) all furniture and furnishings and all other items of personal
property (excluding Inventory and personal property owned by Lessee) located on,
and used in connection with, the operation of the Leased Improvements as a
hotel, together with all replacements, modifications, alterations and additions
thereto; and
<PAGE>

          (f) all existing leases of space within the Leased Property (including
any security deposits or collateral held by Lessor pursuant thereto).

THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION
OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF
PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL
COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS OF RECORD
INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS AND OTHER MATTERS WHICH WOULD BE
DISCLOSED BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY
THEREOF.

     1.2. Definitions. For all purposes of this Lease, except as otherwise
          -----------
expressly provided or unless the context otherwise requires, (a) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular, (b) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles as are at the time applicable, (c) all
references in this Lease to designated "Articles," "Sections" and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Lease and (d) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Lease as a whole and not to any particular
Article, Section or other subdivision:

          Additional Charges:  As defined in Section 3.3.
          ------------------

          Affiliate:  As used in this Lease the term "Affiliate" of a Person
          ---------
shall mean (a) any Person that, directly or indirectly, controls or is
controlled by or is under common control with such Person, (b) any other Person
that owns, beneficially, directly or indirectly, ten percent (10%) or more of
the outstanding capital stock, shares or equity interests of such Person, or (c)
any officer, director, employee, partner, manager or trustee of such Person or
any Person controlling, controlled by or under common control with such Person
or any Person that owns, beneficially, directly or indirectly, ten percent (10%)
or more of the outstanding capital stock, shares or equity interests of such
Person (excluding trustees and Persons serving in similar capacities who are not
otherwise an Affiliate of such Person).  For the purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests.

          Annual Budget:  As used in this Lease, the term "Annual Budget" shall
          -------------
mean an operating and capital budget prepared by Lessee and delivered to Lessor
in accordance with Section 4.1.

          Award:  As defined in Subsection 15.1(a).
          -----

                                       2
<PAGE>

          Base Rate:  The rate of interest announced publicly by Citibank, N.A.,
          ---------
in New York, New York, from time to time, as such bank's base rate.  If no such
rate is announced or if such rate becomes discontinued, then such other rate as
Lessor may reasonably designate.

          Base Rent:  As defined in Subsection 3.1(a).
          ---------

          Business Day:  Each Monday, Tuesday, Wednesday, Thursday and Friday
          ------------
that is not a day on which national banks in the City of New York, New York, or
in the municipality wherein the Leased Property is located are closed.

          CERCLA:  The Comprehensive Environmental Response, Compensation and
          ------
Liability Act of 1980, as amended.

          Change of Control:  The sale, conveyance, assignment, encumbering,
          -----------------
pledging, hypothecation, granting a security interest in, granting of options
with respect to, or other disposition of (directly or indirectly, voluntarily or
involuntarily, by operation of law or otherwise, and whether or not for
consideration) of any class stock or other equity interests in a Person (other
than among existing holders of interests in such Person on the Commencement Date
and/or family members of such holders and/or trusts for the benefit of any of
the foregoing) that, upon a transfer of any portion thereof, will create in the
transferee thereof, directly or indirectly, a majority of any class of stock or
other equity interests of such Person.

          Claims:  As defined in Section 12.2.
          ------

          COBRA:  As defined in Subsection 8.2(b).
          -----

          Code:  The Internal Revenue Code of 1986, as amended.
          ----

          Commencement Date:  As defined in Section 2.1.
          -----------------

          Competitive Set:  As defined in the STR Reports.  Lessor and Lessee
          ---------------
shall work in good faith to determine any additions and deletions to the Hotel's
Competitive Set, on or before November 15th of each year, with such changes to
be applicable for the following Fiscal Year.  In the event Lessor and Lessee
cannot agree to the Hotel's Competitive Set by November 15th of any year, such
unagreed items shall be determined by Smith Travel Research (or, if it refuses
or is unable to do so, by arbitration pursuant to Section 25.2).  The costs of
resetting the Hotel's Competitive Set shall be borne equally by the parties.

          Comparison Month:  As defined in Subsection 3.1(d).
          ----------------

          Condemnation, Condemnor:  As defined in Section 15.1
          -----------------------

          Consolidated Financials:  For any fiscal year or other accounting
          -----------------------
period for Lessee and its consolidated subsidiaries, if any, statements of
earnings and retained earnings and of changes in financial position for such
period and for the period from the beginning of the respective fiscal year to
the end of such period and the related balance sheet as at the end of such
period,

                                       3
<PAGE>

together with the notes thereto, all in reasonable detail and setting forth in
comparative form the corresponding figures for the corresponding period in the
preceding fiscal year, and prepared in accordance with generally accepted
accounting principles and audited by independent certified public accountants
acceptable to Lessor in its sole discretion.

          Consumer Price Index:  The "U.S. City Average, All Items" Consumer
          --------------------
Price Index for All Urban Consumers published by the Bureau of Labor Statistics
of the United States Department of Labor (Base: 1982-1984=100), or any successor
index thereto.  If the Consumer Price Index is hereafter converted to a
different standard reference base or otherwise revised, any determination
hereunder that uses the Consumer Price Index shall be made with the use of such
conversion factor, formula or table for converting the Consumer Price Index as
may be published by the Bureau of Labor Statistics, or, if the Bureau shall no
longer publish the same, then with the use of such conversion factor, formula or
table as may be published by Prentice Hall, Inc., or, failing such publication,
by any other nationally recognized publisher of similar statistical information.

          Date of Taking:  As defined in Subsection 15.1(d).
          --------------

          Encumbrance:  As defined in Section 22.1.
          -----------

          Environmental Audit:  As defined in Subsection 8.3(b).
          -------------------

          Environmental Authority:  Any department, agency or other body or
          -----------------------
component of any Government that exercises any form of jurisdiction or authority
under any Environmental Law.

          Environmental Authorization:  Any license, permit, order, approval,
          ---------------------------
consent, notice, registration, filing or other form of permission or
authorization required under any Environmental Law.

          Environmental Laws:  All applicable federal, state, local and foreign
          ------------------
laws and regulations relating to pollution of the environment (including without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including without limitation laws and regulations relating to
emissions, discharges, Releases or threatened Releases of Hazardous Materials or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials.  Environmental
Laws include but are not limited to CERCLA, FIFRA, RCRA, SARA and TSCA.

          Environmental Liabilities:  Any and all obligations to pay the amount
          -------------------------
of any judgment or settlement, the cost of complying with any settlement,
judgment or order for injunctive or other equitable relief, the cost of
compliance or corrective action in response to any notice, demand or request
from an Environmental Authority, the amount of any civil penalty or criminal
fine, and any court costs and reasonable amounts for attorney's fees, fees for
witnesses and experts, and costs of investigation and preparation for defense of
any claim or any Proceeding, regardless of whether such Proceeding is
threatened, pending or completed, that may be or have been asserted against or
imposed upon Lessor, Lessee, any Predecessor, the Leased Property or any
property used therein and arising out of:

                                       4
<PAGE>

          (a) Failure of Lessee, Lessor, any Predecessor or the Leased Property
to comply at any time with all Environmental Laws;

          (b) Presence of any Hazardous Materials on, in, under, at or in any
way affecting the Leased Property;

          (c) A Release at any time of any Hazardous Materials on, in, at, under
or in any way affecting the Leased Property;

          (d) Identification of Lessee, Lessor or any Predecessor as a
potentially responsible party under CERCLA or under any Environmental Law
similar to CERCLA;

          (e) Presence at any time of any above-ground and/or underground
storage tanks, as defined in RCRA or in any applicable Environmental Law on, in,
at or under the Leased Property or any adjacent site or facility; or

          (f) Any and all claims for injury or damage to Persons or property
arising out of exposure to Hazardous Materials originating or located at the
Leased Property, or resulting from operation thereof or any adjoining property.

          Event of Default:  As defined in Section 16.1.
          ----------------

          Fair Market Rental:  The fair market rental of the Leased Property
          ------------------
means the rental which a willing tenant not compelled to rent would pay a
willing landlord not compelled to lease for the use and occupancy of such Leased
Property pursuant to the Lease for the term in question, (a) assuming that
Lessee is not in default thereunder and (b) determined in accordance with the
appraisal procedures set forth in Article 24 or in such other manner as shall be
mutually acceptable to Lessor and Lessee.

          Fair Market Value:  The fair market value of the Leased Property means
          -----------------
an amount equal to the price that a willing buyer not compelled to buy would pay
a willing seller not compelled to sell for such Leased Property, (a) assuming
the same is unencumbered by this Lease, (b) determined in accordance with the
appraisal procedures set forth in Article 24 or in such other manner as shall be
mutually acceptable to Lessor and Lessee, (c) assuming that such seller must pay
customary closing costs and title premiums, and (d) taking into account the
positive or negative effect on the value of the Leased Property attributable to
the interest rate, amortization schedule, maturity date, prepayment penalty and
other terms and conditions of any encumbrance that is assumed by the transferee.
In addition, in determining the Fair Market Value with respect to damaged or
destroyed Leased Property such value shall be determined as if such Leased
Property had not been so damaged or destroyed.

          FIFRA:  The Federal Insecticide, Fungicide, and Rodenticide Act, as
          -----
amended.

          Fiscal Year:  The twelve (12) month period from January 1 to December
          -----------
31, or any shorter period at the beginning or end of the Term.

                                       5
<PAGE>

          Fixtures:  As defined in Section 1.1.
          --------

          Force Majeure:  An Unavoidable Occurrence, generally affecting travel
          -------------
and/or the hotel or lodging business in the market and/or submarket in which the
Hotel is located.

          Franchise Agreement:  Any franchise agreement or license agreement
          -------------------
with a franchisor (such as Promus Hotels, Inc.) under which the Hotel is
operated.

          Furniture and Equipment:  For purposes of this Lease, the terms
          -----------------------
"furniture and equipment" shall mean collectively all furniture, furnishings,
wall coverings, fixtures and hotel equipment and systems located at, or used in
connection with, the Hotel, together with all replacements therefor and
additions thereto, including, without limitation, (i) all equipment and systems
required for the operation of kitchens and bars, laundry and dry cleaning
facilities, (ii) office equipment, (iii) material handling equipment, cleaning
and engineering equipment, (iv) telephone and computerized accounting systems,
and (v) vehicles.

          Government:  The United States of America, any state, district or
          ----------
territory thereof, any foreign nation, any state, district, department,
territory or other political division thereof, or any agency or political
subdivision of any of the foregoing.

          Gross Operating Expenses:  The term "Gross Operating Expenses" shall
          ------------------------
include (i) all costs and expenses of operating the Hotel included within the
meaning of the term "Total Costs and Expenses" contained in the Uniform System
and, (ii) without duplication, the following: all salaries and employee expense
and payroll taxes (including salaries, wages, bonuses and other compensation of
all employees of the Hotel, and benefits including life, medical and disability
insurance and retirement benefits), expenditures described in Section 9.1,
operational supplies, utilities, insurance to be provided by Lessee under the
terms of this Lease, governmental fees and assessments, common area maintenance
costs and other common area fees and assessments, food, beverages, laundry
service expense, the cost of Inventories, license fees, advertising, marketing,
reservation systems and any and all other operating expenses as are reasonably
necessary for the proper and efficient operation of the Hotel and the Leased
Property incurred by Lessee in accordance with the provisions hereof (excluding,
however, (i) federal, state and municipal excise, sales and use taxes collected
directly from patrons and guests or as a part of the sales price of any goods,
services or displays, such as gross receipts, admissions, cabaret or similar or
equivalent taxes paid over to federal, state or municipal governments, (ii) the
cost of insurance to be provided under Article 13, (iii) expenditures by Lessor
pursuant to Article 13 and (iv) payments on any Mortgage or other mortgage or
security instrument on the Hotel); all determined in accordance with generally
accepted accounting principles.  No part of Lessee's central office overhead or
general or administrative expense (as opposed to that of the Hotel) shall be
deemed to be a part of Gross Operating Expenses, as herein provided.  Reasonable
out-of-pocket expenses of Lessee incurred for the account of or in connection
with the Hotel operations, including but not limited to postage, telephone
charges and reasonable travel expenses of employees, officers and other
representatives and consultants of Lessee and its Affiliates, shall be deemed to
be a part of Gross Operating Expenses and such Persons shall be afforded
reasonable accommodations, food, beverages, laundry, valet and other such
services by and at the Hotel without charge to such Persons or Lessee.

                                       6
<PAGE>

          Gross Operating Profit:  For any Fiscal Year, the excess of Gross
          ----------------------
Revenues for such Fiscal Year over Gross Operating Expenses for such Fiscal
Year.

          Gross Revenues:  All revenues, receipts, and income of any kind
          --------------
derived directly or indirectly by Lessee from or in connection with the Hotel
(including rentals or other payments from tenants, lessees, licensees or
concessionaires but not including their gross receipts) whether on a cash basis
or credit, paid or collected, determined in accordance with generally accepted
accounting principles, excluding, however: (i) funds furnished by Lessor, (ii)
federal, state and municipal excise, sales, and use taxes collected directly
from patrons and guests or as a part of the sales price of any goods, services
or displays, such as gross receipts, admissions, cabaret or similar or
equivalent taxes and paid over to federal, state or municipal governments, (iii)
the amount of all credits, rebates or refunds to customers, guests or patrons,
and all service charges, finance charges, interest and discounts attributable to
charge accounts and credit cards, to the extent the same are paid to Lessee by
its customers, guests or patrons, or to the extent the same are paid for by
Lessee to, or charged to Lessee by, credit card companies, (iv) gratuities or
service charges actually paid to employees, (v) proceeds of insurance and
condemnation, (vi) proceeds from sales other than sales in the ordinary course
of business, (vii) all loan proceeds from financing or refinancings of the Hotel
or interests therein or components thereof, (viii) judgments and awards, except
any portion thereof arising from normal business operations of the Hotel, and
(ix) items constituting "allowances" under the Uniform System.

          Hazardous Materials:  All chemicals, pollutants, contaminants, wastes
          -------------------
and toxic substances, including without limitation:

          (a) Solid or hazardous waste, as defined in RCRA or any other
Environmental Law;

          (b) Hazardous substances, as defined in CERCLA or any other
Environmental Law;

          (c) Toxic substances, as defined in TSCA or any other Environmental
Law;

          (d) Insecticides, fungicides, or rodenticides, as defined in FIFRA or
any other Environmental Law; and

          (e) Gasoline or any other petroleum product or byproduct,
polychlorinated biphenyl, asbestos and urea formaldehyde.

          Hotel:  The hotel and/or other facility offering lodging and other
          -----
services or amenities being operated or proposed to be operated on the Leased
Property.

          Hotel Market Decline:  A period of six (6) consecutive calendar months
          --------------------
during which there is (i) a twenty percent (20%) decline in average hotel
occupancy for the Hotel from the average hotel occupancy levels for same period
during the prior calendar year and (ii) a twenty percent (20%) decline in
average hotel occupancy for the Hotel's Competitive Set from the average

                                       7
<PAGE>

hotel occupancy levels for the same period during the prior calendar year, as
published in the applicable STR Reports.

          Impositions:  Collectively, all taxes (including, without limitation,
          -----------
all ad valorem, sales and use, single business, gross receipts, transaction,
privilege, rent or similar taxes as the same relate to or are imposed upon
Lessee or its business conducted upon the Leased Property), assessments
(including, without limitation, all assessments for public improvements or
benefit, whether or not commenced or completed prior to the date hereof and
whether or not to be completed within the Term), ground rents, water, sewer or
other rents and charges, excises, tax inspection, authorization and similar fees
and all other governmental charges, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character in
respect of the Leased Property or the business conducted thereon by Lessee
(including all interest and penalties thereon caused by any failure in payment
by Lessee), which at any time prior to, during or with respect to the Term
hereof may be assessed or imposed on or with respect to or be a lien upon (a)
Lessor's interest in the Leased Property, (b) the Leased Property, or any part
thereof or any rent therefrom or any estate, right, title or interest therein,
or (c) any occupancy, operation, use or possession of, or sales from, or
activity conducted on or in connection with the Leased Property, or the leasing
or use of the Leased Property or any part thereof by Lessee.  Nothing contained
in this definition of Impositions shall be construed to require Lessee to pay
(1) any tax based on net income (whether denominated as a franchise or capital
stock or other tax) imposed on Lessor or any other Person, or (2) any net
revenue tax of Lessor or any other Person, or (3) any tax imposed with respect
to the sale, exchange or other disposition by Lessor of any Leased Property or
the proceeds thereof, or (4) any single business, gross receipts (other than a
tax on any rent received by Lessor from Lessee), transaction, privilege or
similar taxes as the same relate to or are imposed upon Lessor, except to the
extent that any tax, assessment, tax levy or charge that Lessee is obligated to
pay pursuant to the first sentence of this definition and that is in effect at
any time during the Term hereof is totally or partially repealed, and a tax,
assessment, tax levy or charge set forth in clause (1) or (2) is levied,
assessed or imposed expressly in lieu thereof.

          Indemnified Party:  Either of a Lessee Indemnified Party or a Lessor
          -----------------
Indemnified Party.

          Indemnifying Party:  Any party obligated to indemnify an Indemnified
          ------------------
Party pursuant to Sections 8.3 or 18.1.

          Insurance Requirements:  All terms of any insurance policy required by
          ----------------------
this Lease and all requirements of the issuer of any such policy.

          Inventory:  All "Inventories of Merchandise" and "Inventories of
          ---------
Supplies" as defined in the Uniform System, including without limitation linens,
china, silver, glassware and other non-depreciable personal property, and
including any property of the type described in Section 1221(1) of the Code.

          Land:  As defined in Section 1.1.
          ----

          Lease:  This Lease.
          -----

                                       8
<PAGE>

          Leased Improvements; Leased Property:  Each as defined in Section 1.1.
          ------------------------------------

          Legal Requirements:  All federal, state, county, municipal and other
          ------------------
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the maintenance,
construction, use or alteration thereof (whether by Lessee or otherwise),
whether now in force or hereafter enacted and in force, including (a) all laws,
rules or regulations pertaining to the environment, occupational health and
safety and public health, safety or welfare, and (b) any laws, rules or
regulations that may (1) require repairs, modifications or alterations in or to
the Leased Property or (2) in any way adversely affect the use and enjoyment
thereof; and all permits, licenses and authorizations and regulations relating
thereto and all covenants, agreements, restrictions and encumbrances contained
in any instruments, either of record or known to Lessee (other than encumbrances
created by Lessor without the consent of Lessee), at any time in force affecting
the Leased Property.

          Lending Institution:  Any insurance company, credit company,
          -------------------
federally-insured commercial or savings bank, national banking association,
savings and loan association, employees welfare, pension or retirement fund or
system, corporate profit sharing or pension trust, college or university, or
real estate investment trust, including any corporation qualified to be treated
for federal tax purposes as a real estate investment trust, such trust having a
net worth of at least $10,000,000.

          Lessee:  The Lessee designated on this Lease and its respective
          ------
permitted successors and assigns.

          Lessee Indemnified Party:  Lessee, any Affiliate of Lessee, any other
          ------------------------
Person against whom any claim for indemnification may be asserted hereunder as a
result of a direct or indirect ownership interest (including a stockholder's or
member's interest) in Lessee, the officers, directors, stockholders, members,
managers, employees, agents and representatives of Lessee, and the respective
heirs, personal representatives, successors and assigns of any such officer,
director, stockholder, member, manager, employee, agent or representative.

          Lessee's Personal Property:  As defined in Section 6.2.
          --------------------------

          Lessee's Work:  As defined in Section 10.4.
          -------------

          Lessor:  The Lessor designated In this Lease and its respective
          ------
successors and assigns.

          Lessor Indemnified Party:  Lessor, any Affiliate of Lessor, any other
          ------------------------
Person against whom any claim for indemnification may be asserted hereunder as a
result of a direct or indirect ownership interest (including a stockholder's or
partnership interest) in Lessor, the officers, directors, stockholders, members,
managers, employees, agents and representatives of the general partner of Lessor
and any partner, agent, or representative of Lessor, and the respective heirs,
personal representatives, successors and assigns of any such officer, director,
stockholder, partner, member, manager, employee, agent or representative.

                                       9
<PAGE>

          Licenses:  As defined in Subsection 2.3(a).
          --------

          Management Agreement:  The agreement pursuant to which Manager
          --------------------
operates the Hotel.

          Manager:  Promus Hotels, Inc., a Delaware corporation, or any
          -------
successor manager that is retained by Lessee to operate the Hotel pursuant to
this Lease and the Franchise Agreement.

          Minimum Price:  The sum of (a) the equity in the Leased Property at
          -------------
the time of acquisition of the Leased Property by Lessor, plus (b) other capital
expenditures on the Leased Property by Lessor after the date hereof (less
depreciation and amortization thereof) plus (c) the unpaid principal balance of
all encumbrances against the Leased Property at the time of purchase of the
Leased Property by Lessee, less (x) all proceeds received by Lessor from any
financing or refinancing of the Leased Property after the date hereof (after
payment of any debt refinanced and net of any costs and expenses incurred in
connection with such financing or refinancing, including, without limitation,
loan points, commitment fees and commissions and legal fees) and (y) the net
amount (after deduction of all reasonable legal fees and other costs and
expenses, including without limitation expert witness fees, incurred by Lessor
in connection with obtaining any such proceeds or award) of all insurance
proceeds received by Lessor and awards received by Lessor from any partial
Taking of the Leased Property that are not applied to restoration.

          Mortgage:  As defined in Section 22.2.
          --------

          National Economic Decline:  A period of six (6) consecutive calendar
          -------------------------
months during which there occurs or continues a ten percent (10%) decline in
average hotel occupancy, from average hotel occupancy levels for the same period
during the prior calendar year, for all open and operating hotels in the United
States as determined from the applicable STR Reports or, if the STR Reports are
not longer published, other reputable national economic data regarding the
hospitality industry.

          Notice:  As defined in Article 26.
          ------

          Officer's Certificate:  A certificate of Lessee reasonably acceptable
          ---------------------
to Lessor, signed by the chief financial officer or another officer authorized
so to sign by the board of directors or other governing body of Lessee, or
bylaws or limited liability company agreement of Lessee, or any other Person
whose power and authority to act has been authorized by delegation in writing by
any such officer.

          Optional Termination Date:  As defined in Section 2.2.
          -------------------------

          Overdue Rate:  On any date, a rate equal to the Base Rate plus five
          ------------
percent (5%) per annum, but in no event greater than the maximum rate then
permitted under applicable law.

          Payment Date:  Any due date for the payment of any installment of Base
          ------------
Rent.

                                      10
<PAGE>

          Percentage Rent: As defined in Subsection 3.1(b).
          ---------------

          Person:  Any Government, natural person, corporation, general or
          ------
limited partnership, limited liability company, stock company or association,
joint venture, association, company, trust, bank, trust company, land trust,
business trust, or other entity.

          Personal Property Taxes:  All personal property taxes imposed on the
          -----------------------
furniture, furnishings or other items of personal property located on, and used
in connection with, the operation of the Leased Improvements as a hotel (other
than Inventory and other personal property owned by Lessee), together with all
replacement, modifications, alterations and additions thereto.

          Predecessor:  Any Person whose liabilities arising under any
          -----------
Environmental Law have or may have been retained or assumed by Lessor or Lessee,
either contractually or by operation of law, relating to the Leased Property.

          Primary Intended Use:  As defined in Subsection 7.2(b).
          --------------------

          Proceeding:  Any judicial action, suit or proceeding (whether civil or
          ----------
criminal), any administrative proceeding (whether formal or informal), any
investigation by a governmental authority or entity (including a grand jury),
and any arbitration, mediation or other non-judicial process for dispute
resolution.

          Quarterly Revenues Computation:  As defined in Subsection 3.1(b).
          ------------------------------

          RCRA:  The Resource Conservation and Recovery Act, as amended.
          ----

          Real Estate Taxes:  All real estate taxes, including general and
          -----------------
special assessments, if any, which are imposed upon the Land, and any
improvements thereon.

          Regional Market Decline: A period of six (6) consecutive calendar
          -----------------------
months during which there is a twenty percent (20%) decline in average hotel
occupancy from hotel occupancy levels for the same period during the then prior
calendar year, for all open and operating hotels in the Smith Travel Research
Region in which the Hotel is located, as determined from applicable STR Reports
or, if the STR Reports are no longer published, other reputable regional
economic data regarding the hospitality industry.

          Rejectable Offer Price:  An amount equal to the greater of (a) the
          ----------------------
Fair Market Value, determined as of the applicable purchase date, or (b) the
Minimum Price.

          Release:  A "Release" as defined in CERCLA or in any Environmental
          -------
Law, unless such Release has been properly authorized and permitted in writing
by all applicable Environmental Authorities or is allowed by such Environmental
Law without authorizations or permits.

          Rent:  Collectively, the Base Rent, Percentage Rent, Sundry Rent and
          ----
Additional Charges.

                                      11
<PAGE>

          Repositioning:  As defined in Section 3.6.
          -------------

          SARA:  The Superfund Amendments and Reauthorization Act of 1986, as
          ----
amended.

          Solvent:  As to any Person, (a) the sum of the assets of such Person
          -------
exceeds its liabilities and (b) such Person has sufficient capital with which to
conduct its business as presently conducted and as proposed to be conducted.

          State:  The state or commonwealth in which the Hotel is located.
          -----

          STR Reports:  Reports compiled by Smith Travel Research, or its
          -----------
successor, which contain historical supply and demand, occupancy, and average
rate information for the Hotel and hotels with which it competes (or, in the
event that Smith Travel Research discontinues providing such information,
reports of similar nature compiled by an authority recognized nationally in the
hospitality industry).

          Subsidiaries:  Persons in which Lessee owns, directly or indirectly,
          ------------
more than fifty percent (50%) of the voting stock or control, as applicable.

          Suite Revenue Breakpoint:  As defined in Subsection 3.1(b).
          ------------------------

          Suite Revenues:  All revenues, receipts, and income of any kind
          --------------
derived directly or indirectly by Lessee from or in connection with the rental
of guest rooms or suites, whether to individuals, groups or transients, at the
Hotel, whether on a cash basis or credit, paid or collected, determined in
accordance with generally accepted accounting principles, but excluding the
following:

          (a)  The amount of all credits, rebates or refunds to customers,
guests or patrons, and all service charges, finance charges, interest and
discounts attributable to charge accounts and credit cards, to the extent the
same are paid to Lessee by its customers, guests or patrons, or to the extent
the same are paid for by Lessee to, or charged to Lessee by, credit card
companies;

          (b)  All sales taxes or any other taxes imposed on the rental of such
guest rooms or suites;

          (c)  Gratuities or service charges actually paid to employees;

          (d)  Proceeds of business interruption and other insurance; and

          (e)  Sundry Revenues.

          Sundry Rent: As defined in Section 3.1(c).
          -----------

                                      12
<PAGE>

          Sundry Revenues:  All revenues, receipts, and income derived from the
          ---------------
Hotel's meeting rooms, telephones, TV and movie rentals, check room, washroom,
laundry, valet, vending machines, and other sources not specified herein as
Suite Revenues.

          Taking: A taking or voluntary conveyance during the Term hereof of all
          ------
or part of the Leased Property, or any interest therein or right accruing
thereto or use thereof, as the result of, or in settlement of, any Condemnation
or other eminent domain Proceeding affecting the Leased Property whether or not
the same shall have actually been commenced.

          Term: As defined in Section 2.1.
          ----

          TSCA: The Toxic Substances Control Act, as amended.
          ----

          Unavoidable Delays:  Delays due to strikes, lock-outs, labor unrest,
          ------------------
inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, unavoidable casualty or other
causes beyond the control of the party responsible for performing an obligation
hereunder, provided that lack of funds shall not be deemed a cause beyond the
control of either party hereto unless such lack of funds is caused by the
failure of the other party hereto to perform any obligations of such party under
this Lease or any guaranty of this Lease.

          Unavoidable Occurrence.  The occurrence of strikes, lockouts, labor
          ----------------------
unrest, gasoline and other energy shortages, widespread disruption of air, auto
or other travel, inability to procure materials or services, power or other
utility failure, acts of God (such as hurricanes, tornadoes, earthquakes, floods
and mud slides), governmental restrictions, war or other enemy or terrorist
action, civil commotion, fire, casualty, condemnation, the Year 2000 Problem or
other similar causes, in each case, if such cause is beyond the reasonable
control of Lessee; provided that (i) lack of funds shall not be deemed a cause
beyond the reasonable control of either party hereto unless such lack of funds
is caused by the failure of the other party hereto to perform any obligations of
such party under this Lease or any guaranty of this Lease, and (ii) any such
occurrence is an extraordinary, as opposed to a routine or cyclical, material
event that was not reasonably foreseeable when the then-applicable Annual Budget
was prepared.

          Uneconomic for its Primary Intended Use:  A state or condition of the
          ---------------------------------------
Hotel such that, in the good faith judgment of Lessee, reasonably exercised and
evidenced by the resolution of the board of directors or other governing body of
Lessee, the Hotel cannot be operated on a commercially practicable basis for its
Primary Intended Use, taking into account, among other relevant factors, the
number of usable rooms and projected revenues, such that Lessee intends to, and
shall, complete the cessation of operations from the Leased Hotel.

          Uniform System:  The Uniform System of Accounts for Hotels (9th
          --------------
Revised Edition, 1996) as published by the Hotel Association of New York City,
Inc., with such later revisions as may be agreed to by both Lessor and Lessee.

                                      13
<PAGE>

           Unsuitable for its Primary Intended Use:  A state or condition of the
           ---------------------------------------
Hotel such that, in the good faith judgment of Lessee, reasonably exercised and
evidenced by the resolution of the board of directors or other governing body of
Lessee, due to casualty damage or loss through Condemnation, the Hotel cannot
function as an integrated hotel facility consistent with standards applicable to
a well maintained and operated hotel.

           WARN Act:  As defined in Subsection 8.2(b).
           --------

           Work Letter:  As defined in Section 10.4.
           -----------

           Working Capital:  Funds reasonably necessary for the day-to-day
           ---------------
operation of the Hotel's business for a thirty (30) day period, including,
without limitation, amounts sufficient for the maintenance of change and petty
cash funds, operating bank accounts, payrolls, accounts payable, accrued current
liabilities, and funds required to maintain Inventories.

           Year 2000 Problem:  The malfunction of software, hardware or an
           -----------------
embedded technological system due to the failure to properly process any date or
input which includes an indication of or reference to a date, including
specifically but not limited to dates that represent or reference different
centuries or more than one century, if either (i) Lessor had previously refused
to make or approve a capital expenditure reasonably proposed by Lessee to avoid
such Year 2000 Problem, or (ii) such Year 2000 Problem results from a
governmental or other third party failure to be year 2000 compliant and Lessee
has not failed to take reasonable steps to seek assurances that such parties
will be year 2000 compliant.


                                   ARTICLE 2
                                   ---------
                               TERM; TERMINATION

     2.1.  Term.
           -----

           (a)  The term of the Lease (the "Term") shall commence April 26, 2001
(the "Commencement Date"), and shall end on the tenth (10th) anniversary of the
Commencement Date, unless sooner terminated in accordance with the provisions
hereof or extended to an anniversary of the initial expiration date pursuant to
this Article 2.

           (b)  Lessee is granted the option to extend the Term of this Lease
for a period of five (5) years (the "First Extension"), provided that Lessee is
not in default hereunder either at the time of deemed exercise of the option or
at the end of the original Term, which option must be exercised by written
notice to Lessor at least one hundred twenty (120) days prior to the expiration
of the original Term. The First Extension shall be upon the same terms,
conditions and rentals as set forth herein for the original Term.

           (c)  Lessee is granted an option to extend the Term for a period of
five (5) years following the end of the First Extension (the "Second
Extension"), provided that Lessee is not in default hereunder either at the time
of exercise of the option or at the end of the First Extension, which option
must be exercised by written notice to Lessor at least one hundred twenty (120)
days

                                      14
<PAGE>

prior to the expiration of the First Extension. If such option is exercised,
Lessor and Lessee shall negotiate in good faith modifications to the Rent for
the Second Extension to adjust such Rent to market rates for arms-length hotel
REIT leases between unrelated parties for similar hotel properties at that time.
In the event Lessor and Lessee are unable to agree upon Rent terms for the
Second Extension at least ninety (90) days prior to the expiration of the Term,
the Rent terms for the Second Extension shall be determined by a panel of three
(3) persons who have generally recognized expertise in evaluating hotel REIT
leases and who are not Affiliates of Lessor or Lessee. Lessee and the Lessor
each shall have the right to designate one panel member and the two (2) panel
members so designated will designate the third panel member. Rent terms approved
by at least two (2) of the three (3) panel members will be binding on Lessee and
Lessor for the Second Extension, which shall be otherwise on the terms set forth
herein. In determining the market rates for the Second Extension, the panel
members shall be instructed to consider hotel REIT lease terms with respect to
similar hotel property types. The Second Extension shall be otherwise upon the
same terms and conditions as set forth herein for the original Term.

     2.2.  Lessor's Option to Terminate Lease. In the event Lessor enters into a
           -----------------------------------
bona fide contract to sell the Leased Property to a non-Affiliate, there is a
Change of Control of Lessor, or the provisions of the Code are amended to permit
Lessor to operate hotels or otherwise render the structure embodied by this
Lease to be obsolete, Lessor may terminate the Lease by giving not less than
thirty (30) days' prior Notice to Lessee of Lessor's election to terminate the
Lease effective upon, as appropriate, the closing under such contract, the date
of such Change of Control, or the effective date of such amendment to the Code
(or any other specified date within 30 days after such date) (the "Optional
Termination Date"). Effective upon the Optional Termination Date, this Lease
shall terminate and be of no further force and effect except as to any
obligations of the parties existing as of such date that survive termination of
this Lease. As compensation for the early termination of its leasehold estate
under this Section 2.2, Lessor shall within 12 months of the Optional
Termination Date either (a) pay to Lessee the fair market value of Lessee's
leasehold estate hereunder plus interest thereon at the Base Rate as of the
Optional Termination Date or (b) offer to lease to Lessee one or more substitute
hotel facilities pursuant to one or more leases that would create for Lessee
leasehold estates that have an aggregate fair market value of no less than the
fair market value of the original leasehold estate, both such values as
determined as of the Optional Termination Date. Lessor also shall pay to Lessee,
or reimburse Lessee for any assignment fees, termination fees or other
liabilities arising under the Franchise Agreement or Management Agreement solely
as a result of the assignment or termination of such Franchise Agreement or
Management Agreement in connection with the termination of this Lease under this
Section 2.2. If Lessor elects and complies with the option described in (b)
above, regardless of whether Lessee enters into the lease(s) described therein,
Lessor shall have no further obligations to Lessee with respect to compensation
for the early termination of this Lease. In the event Lessor and Lessee are
unable to agree upon the fair market value of an original or replacement
leasehold estate, it shall be determined by appraisal using the appraisal
procedure set forth in Article 24.

     For the purposes of this Article, fair market value of the leasehold estate
means, as applicable, an amount equal to the price that a willing buyer not
compelled to buy would pay a willing seller not compelled to sell for Lessee's
leasehold estate under this Lease or an offered replacement leasehold estate,
taking into account that the leasehold estate is encumbered by the Franchise
Agreement and an arm's-length Management Agreement.

                                      15
<PAGE>

     2.3.  Transition Procedures.  Upon the expiration or termination of the
           ----------------------
Term of this Lease, for whatever reason (other than a purchase of the Leased
Property by Lessee), Lessor and Lessee shall do the following (and the
provisions of this Section 2.3 shall survive the expiration or termination of
this Lease until they have been fully performed) and, in general, shall
cooperate in good faith to effect an orderly transition of the management and/or
lease of the Hotel:

           (a)  Transfer of Licenses. Lessee shall use reasonable efforts (i) to
                --------------------
transfer to Lessor or Lessor's nominee all licenses, operating permits and other
governmental authorizations and all contracts, including contracts with
governmental or quasi-governmental entities, that may be necessary for the
operation of the Hotel (collectively, "Licenses"), or (ii) if such transfer is
prohibited by law or Lessor otherwise elects, to cooperate with Lessor or
Lessor's nominee in connection with the processing by Lessor or Lessor's nominee
of any applications for, all Licenses; provided, in either case, that the costs
and expenses of any such transfer or the processing of any such application
shall be paid by Lessor or Lessor's nominee.

           (b)  Leases and Concessions.  Lessee shall assign to Lessor or
                ----------------------
Lessor's nominee simultaneously with the termination of this Lease, and the
assignee shall assume, all leases and concession agreements in effect with
respect to the Hotel then in Lessee's name.

           (c)  Books and Records.  All books and records for the Hotel kept by
                -----------------
Lessee pursuant to Section 4.2 shall be delivered promptly to Lessor or Lessor's
nominee, simultaneously with the termination of this Lease, but such books and
records shall thereafter be available to Lessee at all reasonable times for
inspection, audit, examination, and transcription for a period of one (1) year
and Lessee may retain (on a confidential basis) copies or computer records
thereof.

           (d)  Receivables and Payables.  Lessee shall be entitled to retain
                ------------------------
all cash, bank accounts and house banks, and to collect all Gross Revenues and
accounts receivable accrued through the termination date.  Lessee shall be
responsible for the payment of Rent, all Gross Operating Expenses and all other
obligations of Lessee accrued under this Lease as of the termination date, and
Lessor or Lessor's nominee shall be responsible for all Gross Operating Expenses
of the Hotel accruing after the termination date.

           (e)  Final Accounting.  Lessee shall, within forty five (45) days
                ----------------
after the expiration or termination of the Term, prepare and deliver to Lessor a
final accounting statement, dated as of the date of the expiration or
termination, along with a statement of any sums due from Lessee to Lessor
pursuant hereto and payment of such funds.

           (f)  Inventory.  Lessee shall insure that the Leased Property, at the
                ---------
date of such termination or expiration, has Inventory of a substantially
equivalent nature and amount as exists at the Leased Property on the
Commencement Date, and Lessor or its designee shall acquire such Inventory from
Lessee for a sale price equal to the fair market value of such Inventory.

           (g)  Surrender. Lessee will, upon the expiration or prior termination
                ---------
of the Term, vacate and surrender the Leased Property to Lessor in the condition
in which the Leased Property was originally received from Lessor, except as
repaired, rebuilt, restored, altered or added to as

                                      16
<PAGE>

permitted or required by the provisions of this Lease and except for ordinary
wear and tear (subject to the obligation of Lessee to maintain the Leased
Property in good order and repair, as would a prudent owner, during the entire
Term of the Lease), or damage by casualty or Condemnation (subject to the
obligations of Lessee to restore or repair as set forth in the Lease)

     The provisions of this Section 2.3 shall survive the expiration or
termination of this Lease until they have been fully performed.  Nothing
contained herein shall limit Lessor's rights and remedies under this Lease if
such termination occurs as the result of an Event of Default.

     2.4.  Holding Over.  If Lessee for any reason remains in possession of the
           -------------
Leased Property after the expiration or earlier termination of the Term, such
possession shall be as a tenant at sufferance during which time Lessee shall pay
as rental each month 150% of the aggregate of (a) one-twelfth of the aggregate
Base Rent and Percentage Rent payable with respect to the last Fiscal Year of
the Term, (b) all Additional Charges accruing during the applicable month and
(c) all other sums, if any, payable by Lessee under this Lease with respect to
the Leased Property. During such period, Lessee shall be obligated to perform
and observe all of the terms, covenants and conditions of this Lease, but shall
have no rights hereunder other than the right, to the extent given by law to
tenancies at sufferance, to continue its occupancy and use of the Leased
Property. Nothing contained herein shall constitute the consent, express or
implied, of Lessor to the holding over of Lessee after the expiration or earlier
termination of this Lease.


                                   ARTICLE 3
                                   ---------
                            RENT; RENT ADJUSTMENTS

     3.1.  Rent.  Lessee will pay to Lessor in lawful money of the United States
           -----
of America which shall be legal tender for the payment of public and private
debts, in immediately available funds, at Lessor's address set forth in Article
26 hereof or at such other place or to such other Person as Lessor from time to
time may designate in a Notice, all Base Rent, Percentage Rent, Sundry Rent and
Additional Charges, during the Term, as follows:

           (a)  Base Rent:  The annual sum of Four Hundred Eighty-Six Thousand
                ---------
Three Hundred Seventy-Three Dollars ($486,373) (prorated for fiscal year 2001),
as adjusted pursuant to Subsection 3.1(d) hereof, payable in advance in equal,
consecutive monthly installments, on or before the tenth day of each calendar
month of the Term ("Base Rent"); provided, however, that the first monthly
payment of Base Rent shall be payable during the second calendar month of the
Term, and that the first and last monthly payments of Base Rent shall be pro
rated as to any partial month (subject to adjustment as provided in Sections
14.5, 15.3 and 15.5).

           (b)  Percentage Rent:  For each calendar quarter during the Term
                ---------------
commencing with the calendar quarter in which the Commencement Date falls and
ending with the calendar quarter in which the Term (including any applicable
extensions) ends, Lessee shall pay percentage rent ("Percentage Rent").

     Percentage Rent for the applicable quarter shall be an amount equal to the
following formula:

                                      17
<PAGE>

          The amount equal to the applicable Quarterly Revenues Computation (as
     defined below) less the sum of

               (i)  an amount equal to the Base Rent paid with respect to such
          quarter and all prior calendar quarters of the applicable Fiscal Year
          and

               (ii) an amount equal to Percentage Rent paid with respect to all
          prior calendar quarters of the applicable Fiscal Year.

For the purpose of the above formula:

     The quarterly revenues computation ("Quarterly Revenues Computation") is
equal to the amount obtained by adding, for the applicable calendar quarter, an
amount equal to the sum of (i) seventeen percent (17%) of all Fiscal Year to
date Suite Revenues up to the applicable suite revenue breakpoint (the "Suite
Revenue Breakpoint") described in Schedule 3.1(b), attached hereto, (prorated
                                  ---------------
for the first and last calendar quarters of the Term (including any applicable
extensions)) and fifty-five percent (55%) of all Fiscal Year to date Suite
Revenues in excess of the applicable Suite Revenue Breakpoint.  At the beginning
of each Fiscal Year, the Suite Revenue Breakpoints shall be adjusted by the same
percentage that the Base Rent is adjusted pursuant to Subsection 3.1(d).

The Percentage Rent shall be payable as follows:

     (i)   with respect to each calendar month of the Term, except for the
           calendar months in the first partial and next two full calendar
           quarters at the beginning of the Term, Lessee shall pay on or before
           the last day of the calendar month an amount equal to the excess, if
           any, of (A) seventy-five percent (75%) of the amount of Lessee's
           budgeted Percentage Rent payable with respect to the then current
           calendar month (which budgeted amount shall be equal to one-third
           (1/3) of the quarterly estimate of Percentage Rent included in the
           Annual Budget for the calendar quarter in which the calendar month
           occurs) over (B) Base Rent for such calendar month; and

     (ii)  with respect to each calendar quarter of the Term, except for the
           calendar months in the first partial and next two full calendar
           quarters at the beginning of the Term, Lessee shall pay on or before
           the 15/th/ day following the end of the calendar quarter an amount
           equal to the amount, if any, by which the aggregate of all payments
           in respect of Base Rent and Percentage Rent for such calendar quarter
           shall be less than the amount determined pursuant to the Quarterly
           Revenues Computation for such calendar quarter; and

     (iii) with respect to the first partial and next two full calendar quarters
           at the beginning of the Term, Lessee shall pay on or before the
           15/th/ day following the end of the calendar quarter an amount equal
           to the amount, if any, by which the aggregate of all payments in
           respect of Base Rent for such calendar quarter shall be less than the

                                      18
<PAGE>

           amount determined pursuant to the Quarterly Revenues Computation of
           such calendar quarter.

In no event will the amount of Percentage Rent payable for any calendar quarter
or the result of any Quarterly Revenues Computation be less than zero, and there
shall be no reduction in the Base Rent regardless of the result of any Quarterly
Revenues Computation.

           (c)  Sundry Rent.  For each calendar quarter during the Term
                -----------
commencing with the calendar quarter in which the Commencement Date falls and
ending with the calendar quarter in which the Term (including any applicable
extensions) ends, Lessee shall pay sundry rent ("Sundry Rent"). Sundry Rent
shall be an amount equal to fifty-five percent (55%) of all Fiscal Year to date
Sundry Revenues less an amount equal to Sundry Rent paid with respect to all
prior calendar quarters of the applicable Fiscal Year. Sundry Rent shall be
payable as follows:

     (i)   with respect to each calendar month of the Term, except for the
           calendar months in the first partial and next two full calendar
           quarters at the beginning of the Term, on or before the last day of
           the calendar month an amount equal to seventy-five percent (75%) of
           the amount of Lessee's budgeted Sundry Rent payable with respect to
           the then current calendar month (which budgeted amount shall be equal
           to one-third (1/3) of the quarterly estimate of Sundry Rent included
           in the Annual Budget for the calendar quarter in which the calendar
           month occurs); and

     (ii)  with respect to each calendar quarter of the Term, except for the
           calendar months in the first partial and next two full calendar
           quarters at the beginning of the Term, on or before the 15/th/ day
           following the end of the calendar quarter an amount equal to the
           amount, if any, by which the aggregate of all payments pursuant to
           Section 3.1(c)(i) in respect of Sundry Rent for such calendar quarter
           shall be less than fifty-five percent (55%) of Sundry Revenues for
           such calendar quarter; and

     (iii) with respect to the first partial and next two full calendar quarters
           at the beginning of the Term, on or before the 15/th/ day following
           the end of the calendar quarter.

           (d)  Officer's Certificates.  Additionally, an Officer's Certificate
                ----------------------
shall be delivered to Lessor quarterly, together with such quarterly Percentage
Rent payment and quarterly Sundry Rent payment, setting forth the calculation of
such rent payment for such quarter, within thirty (30) days after each of the
first three quarters of each Fiscal Year (or part thereof) in the Term. Such
quarterly payments shall be based on the formula set forth in Subsection 3.1(b)
and 3.1(c), as applicable. There shall be no reduction in the Base Rent
regardless of the result of the Quarterly Revenues Computations.

     In addition, on or before March 1 of each year, commencing with March 1,
2000, Lessee shall deliver to Lessor an Officer's Certificate reasonably
acceptable to Lessor setting forth the computation of the actual Percentage Rent
and Sundry Rent that accrued for each quarter of the Fiscal Year that ended on
the immediately preceding December 31 and shall pay to Lessor Percentage Rent
and Sundry Rent, if due and payable, for the last quarter of the applicable
Fiscal Year. Additionally, if the annual Percentage Rent or Sundry Rent due and
payable for any Fiscal

                                      19
<PAGE>

Year (as shown in the applicable Officer's Certificate) exceeds the amount
actually paid as Percentage Rent or Sundry Rent by Lessee for such year, Lessee
also shall pay such excess to Lessor at the time such certificate is delivered.
If the Percentage Rent or Sundry Rent actually due and payable for such Fiscal
Year is shown by such certificate to be less than the amount actually paid as
Percentage Rent or Sundry Rent for the applicable Fiscal Year, Lessor, at its
option, shall reimburse such amount to Lessee or credit such amount against
subsequent months' Base Rent or Sundry Rent, as applicable, and with respect to
Percentage Rent, to the extent necessary, subsequent quarters' Percentage Rent
payments. Any such credit to Base Rent shall not be applied for purposes of
calculating Percentage Rent payable for any subsequent quarter.

     Any difference between the annual Percentage Rent or Sundry Rent due and
payable for any Fiscal Year (as shown in the applicable Officer's Certificate or
as adjusted pursuant to Section 3.3) and the total amount of quarterly payments
for such Fiscal Year actually paid by Lessee as Percentage Rent or Sundry Rent,
whether in favor of Lessor or Lessee, shall bear interest at the Overdue Rate,
which interest shall accrue from the due date of the last quarterly payment for
the Fiscal Year until the amount of such difference shall be paid or otherwise
discharged.  Any such interest payable to Lessor shall be deemed to be and shall
be payable as Additional Charges.

     The obligation to pay Percentage Rent and Sundry Rent shall survive the
expiration or earlier termination of the Term, and a final reconciliation,
taking into account, among other relevant adjustments, any adjustments which are
accrued after such expiration or termination date but which related to
Percentage Rent and Sundry Rent accrued prior to such termination date, and
Lessee's good faith best estimate of the amount of any unresolved contractual
allowances, shall be made not later than two (2) years after such expiration or
termination date, but Lessee shall advise Lessor within sixty (60) days after
such expiration or termination date of Lessee's best estimate at that time of
the approximate amount of such adjustments, which estimate shall not be binding
on Lessee or have any legal effect whatsoever.

          (e)  CPI Adjustments to Base Rent and Percentage Rent.  For each year
               ------------------------------------------------
of the Term beginning on or after January 1, 2001, the Base Rent shall be
adjusted from time to time as follows:

               (1)  If the most recently published Consumer Price Index as of
          the last day of the last month (the "Comparison Month") of any Fiscal
          Year is different than the average Consumer Price Index for the twelve
          (12) month period prior thereto, the Base Rent for the next Fiscal
          Year shall be adjusted by the percentage change in the Consumer Price
          Index calculated as follows:

                    (A)  The difference between the Consumer Price Index for the
          most recent Comparison Month and the average Consumer Price Index for
          the twelve (12) month period prior thereto shall be divided by the
          average Consumer Price Index for the twenty four (24) month period
          prior thereto.

                    (B)  The Base Rent shall be multiplied by the lesser of (i)
          seven percent (7%) or (ii) the quotient obtained in subparagraph
          (d)(1)(A) above.

                                      20
<PAGE>

                    (C)  The product obtained in subparagraph (d)(1)(B) above
          shall be added to the Base Rent.

     Adjustments in the Base Rent shall be effective on the first day of the
first calendar month of the Fiscal Year to which such adjusted Base Rent
applies.  The Suite Revenue Breakpoint then included in the Quarterly Revenues
Computation pursuant to Subsection 3.1(b) shall be similarly adjusted, effective
with any such adjustment in the Base Rent.

               (2)  If (i) a significant change is made in the number or nature
          (or both) of items used in determining the Consumer Price Index, or
          (ii) the Consumer Price Index shall be discontinued for any reason,
          the Bureau of Labor Statistics shall be requested to furnish a new
          index comparable to the Consumer Price Index, together with
          information which will make possible a conversion to the new index in
          computing the adjusted Base Rent hereunder. If for any reason the
          Bureau of Labor Statistics does not furnish such an index and such
          information, the parties will instead mutually select, accept and use
          such other index or comparable statistics on the cost of living in
          Washington, D.C. that is computed and published by an agency of the
          United States or a responsible financial periodical of recognized
          authority.

          (f)  Manager Fund-up Cure Payments.  If and to the extent that Manager
               -----------------------------
pays amounts to Lessee pursuant to the Management Agreement in order to avoid
termination of the Management Agreement by Lessee for Manager's failure to meet
certain performance hurdles described therein, such amounts shall be treated as
additional Suite Revenues for purposes of the Percentage Rent calculation
hereunder.

          (g)  Allocation of Rent. The parties hereto acknowledge and agree that
               ------------------
the Base Rent paid or payable by Lessee to Lessor hereunder shall, to the extent
relevant, be allocated between the personal property and real property
constituting Leased Property hereunder in direct proportion to the then
recognizable fair market value of such personal property and real property.
Percentage Rent in excess of Base Rent shall be allocated solely to real
property.

    3.2.  Confirmation of Percentage Rent and Sundry Rent.  Lessee shall
          ------------------------------------------------
utilize, or cause to be utilized, an accounting system for the Leased Property
in accordance with its usual and customary practices, and in accordance with
generally accepted accounting principles, that will accurately record all data
necessary to compute Percentage Rent and Sundry Rent, and Lessee shall retain,
for at least four (4) years after the expiration of each Fiscal Year (and in any
event until the reconciliation described in Subsection 3.1(c) for such Fiscal
Year has been made), reasonably adequate records conforming to such accounting
system showing all data necessary to compute Percentage Rent and Sundry Rent for
the applicable Fiscal Years. Lessor, at its expense (except as provided
hereinbelow), shall have the right from time to time, upon prior written notice
to Lessee and Manager, by its accountants or representatives to audit the
information that formed the basis for the data set forth in any Officer's
Certificate provided under Subsection 3.1(d) and, in connection with such
audits, to examine all Lessee's records (including supporting data and sales and
excise tax returns) reasonably required to verify Percentage Rent and Sundry
Rent, subject to any prohibitions or limitations on disclosure of any such data
under Legal Requirements; provided, however that Lessor may only inspect or
audit records in Manager's possession subject to the terms

                                      21
<PAGE>

of Lessee's access thereto under the Management Agreement. If any such audit
discloses a deficiency in the payment of Percentage Rent or Sundry Rent, and
either Lessee agrees with the result of such audit or the matter is otherwise
determined or compromised, Lessee shall forthwith pay to Lessor the amount of
the deficiency, as finally agreed or determined, together with interest at the
Overdue Rate from the date when said payment should have been made to the date
of payment thereof; provided, however, that as to any audit that is commenced
more than two (2) years after the date Percentage Rent or Sundry Rent for any
Fiscal Year is reported by Lessee to Lessor, the deficiency, if any, with
respect to such Percentage Rent or Sundry Rent shall bear interest at the
Overdue Rate only from the date such determination of deficiency is made unless
such deficiency is the result of gross negligence or willful misconduct on the
part of Lessee, in which case interest at the Overdue Rate will accrue from the
date such payment should have been made to the date of payment thereof. If any
such audit discloses that the Percentage Rent or Sundry Rent actually due from
Lessee for any Fiscal Year exceed those reported by Lessee by more than three
percent (3%), Lessee shall pay the cost of such audit and examination. Any
proprietary information obtained by Lessor pursuant to the provisions of this
Section shall be treated as confidential, except that such information may be
used, subject to appropriate confidentiality safeguards, in any litigation
between the parties and except further that Lessor may disclose such information
to prospective lenders. The obligations of Lessee contained in this Section
shall survive the expiration or earlier termination of this Lease.

     3.3.  Additional Charges.  In addition to the Base Rent, Percentage Rent
           -------------------
and Sundry Rent, (a) Lessee also will pay and discharge as and when due and
payable all other amounts, liabilities, obligations and Impositions that Lessee
assumes or agrees to pay under this Lease, and (b) in the event of any failure
on the part of Lessee to pay any of those items referred to in clause (a) of
this Section 3.3, Lessee also will promptly pay and discharge every fine,
penalty, interest and cost that may be added for non-payment or late payment of
such items (the items referred to in clauses (a) and (b) of this Section 3.3
being additional rent hereunder and being referred to herein collectively as the
"Additional Charges"), and Lessor shall have all legal, equitable and
contractual rights, powers and remedies provided either in this Lease or by
statute or otherwise in the case of non-payment of the Additional Charges as in
the case of non-payment of the Base Rent. If any installment of Base Rent,
Percentage Rent and Sundry Rent or Additional Charges (but only as to those
Additional Charges that are payable directly to Lessor) shall not be paid on its
due date, Lessee will pay Lessor on demand, as Additional Charges, a late charge
(to the extent permitted by law) computed at the Overdue Rate on the amount of
such installment, from the due date of such installment to the date of payment
thereof. To the extent that Lessee pays any Additional Charges to Lessor
pursuant to any requirement of this Lease, Lessee shall be relieved of its
obligation to pay such Additional Charges to the entity to which they would
otherwise be due and Lessor shall pay same from monies received from Lessee.

     3.4.  Net Lease; No Termination, Abatement, Etc.
           ------------------------------------------

           (a)  The Rent shall be paid absolutely net to Lessor, so that this
Lease shall yield to Lessor the full amount of the installments of Base Rent,
Percentage Rent, Sundry Rent and Additional Charges throughout the Term, all as
more fully set forth in Article 5, but subject to any other provisions of this
Lease that expressly provide for adjustment or abatement of Rent or other

                                      22
<PAGE>

charges or expressly provide that certain expenses or maintenance shall be paid
or performed by Lessor.

           (b)  Except as otherwise specifically provided in this Lease, and
except for loss of the Franchise Agreement solely by reason of any action or
inaction by Lessor, Lessee, to the extent permitted by law, shall remain bound
by this Lease in accordance with its terms and shall neither take any action
without the written consent of Lessor (which shall not be unreasonably withheld
or delayed) to modify, surrender or terminate the same, nor seek nor be entitled
to any abatement, deduction, deferment or reduction of the Rent, or setoff
against the Rent, nor shall the obligations of Lessee be otherwise affected by
reason of (a) any damage to, or destruction of, any Leased Property or any
portion thereof from whatever cause or any Taking of the Leased Property or any
portion thereof, (b) the lawful or unlawful prohibition of, or restriction upon,
Lessee's use of the Leased Property, or any portion thereof, or the interference
with such use by any Person other than Lessor, (c) any claim which Lessee has or
might have against Lessor by reason of any default or breach of any warranty by
Lessor under this Lease or any other agreement between Lessor and Lessee, or to
which Lessor and Lessee are parties, (d) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding up
or other proceedings affecting Lessor or any assignee or transferee of Lessor,
or (e) for any other cause whether similar or dissimilar to any of the foregoing
other than a discharge of Lessee from any such obligations as a matter of law.
Lessee hereby specifically waives all rights, arising from any occurrence
whatsoever, which may now or hereafter be conferred upon it by law to (1)
modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof, or (2) entitle Lessee to any abatement,
reduction, suspension or deferment of the Rent or other sums payable by Lessee
hereunder, except as otherwise specifically provided in this Lease. The
obligations of Lessee hereunder shall be separate and independent covenants and
agreements and the Rent and all other sums payable by Lessee hereunder shall
continue to be payable in all events unless the obligations to pay the same
shall be terminated pursuant to the express provisions of this Lease or by
termination of this Lease other than by reason of an Event of Default.

     3.5.  Material Changes in Economic Climate.
           -------------------------------------

           (a)  In the event of the occurrence of a Force Majeure or a Hotel
Market Decline, Lessor and Lessee shall, in good faith, negotiate possible
modifications to the Base Rent and Percentage Rent to reduce such Base Rent and
Percentage Rent to recent market rates for hotel REIT leases for similar hotel
properties in the Hotel's Competitive Set, retroactively effective as of the
first calendar month of the Term following the last day of the six-month period
during which such Hotel Market Decline has occurred with the excess of Base Rent
and Percentage Rent actually paid for such period over the reduced Base Rent and
Percentage Rent, plus interest thereon at the Base Rate, to be credited to the
next payments of Rent due and owing hereunder. If Lessor and Lessee are unable
to agree that a Force Majeure or a Hotel Market Decline has occurred, within
thirty (30) days after the date of written certification from Lessee to Lessor
that a Force Majeure and Hotel Market Decline has occurred (accompanied by
reasonably detailed computations and documentation to support such assertion),
the matter may be submitted by either party to arbitration under Section 25.2
hereof for resolution (during which period Lessee shall continue to pay Base
Rent and Percentage Rent as required under Section 3.1 of this Lease). If,
within ninety (90) days (during which period Lessee shall continue to pay Base
Rent and Percentage Rent as required

                                      23
<PAGE>

under Section 3.1 of this Lease) following the date of such written
certification from Lessee (or the date of a decision of an arbitrator if
required hereunder to determine that a Force Majeure and Hotel Market Decline
has occurred), Lessor and Lessee are unable to agree upon the amount of
reduction in Base Rent and Percentage Rent contemplated hereby, Lessee shall
have the option to terminate this Lease upon not less than thirty (30) days
prior written notice to Lessor.

           (b)  In the event of the occurrence of a National Economic Decline or
a Regional Market Decline, Lessor and Lessee shall, in good faith, negotiate (i)
possible modifications to the Base Rent and Percentage Rent to reduce such Base
Rent and Percentage Rent to recent market rates for hotel REIT leases for
similar hotel properties in the Hotel's Competitive Set, and (ii) possible
modifications to the Base and Percentage Rent payable under each of the Other
Leases for Other Hotels in the same Region (as defined in the STR Reports) as
the Hotel to reduce such Base Rent and Percentage Rent to recent market rates
for hotel REIT leases for similar hotel properties in the Hotel's Competitive
Set, in each case retroactively effective as of the first calendar month of the
Term following the last day of the six month period during which such Regional
Market Decline has occurred with the excess of Base Rent and Percentage Rent
actually paid for such period over the reduced Base Rent and Percentage Rent,
plus interest thereon at the Base Rent, to be credited to the next payments of
Rent due and owing hereunder. If, within thirty (30) days after the date of
written certification from Lessee to Lessor that a National Economic Decline and
Regional Market Decline has occurred (accompanied by reasonably detailed
computations and documentation to support such assertion), Lessor and Lessee are
unable to agree that a National Economic Decline or Regional Market Decline has
occurred, the matter may be submitted by either party to arbitration under
Section 25.2 hereof for resolution (during which period Lessee shall continue to
pay Base Rent and Percentage Rent as required under Section 3.1 of this Lease).
If, within ninety (90) days (during which period Lessee shall continue to pay
Base Rent and Percentage Rent as required under Section 3.1 of this Lease)
following the date of such initial written certification from Lessee (or the
date of a decision of an arbitrator if required hereunder to determine that a
National Economic Decline and Regional Market Decline has occurred), Lessor and
Lessee are unable to agree upon the amount of reduction in Base Rent and
Percentage Rent contemplated hereby, Lessee shall have the option, upon not less
than sixty (60) days prior written notice to Lessor, to terminate all (but not
less than all) of the Existing Leases of hotels in the same Region as the Hotel,
including this Lease.

     3.6.  Rent Adjustment: Basic Assumptions Incorrect.  Except to the extent
           ---------------------------------------------
that doing so would cause Lessor to recognize income other than "rents from real
property" as defined in Section 856(d) of the Code, notwithstanding anything
herein (other than Article 19) to the contrary, if (i) the facts and
circumstances underlying the documented, basic assumptions upon which both
Lessor and Lessee have relied in determining the Base Rent, the Suite Revenue
Breakpoint, and the Percentage Rent payable hereunder become materially
incorrect solely as a result of (A) a decision to re-brand the Hotel that is
made after the Commencement Date, (B) the scope or cost of substantial
renovations or other capital improvements to the Hotel, or (C) the
implementation of any other hotel repositioning strategies (that were not
planned as of the Commencement Date) resulting in significant disruption of the
operations of the Hotel (collectively, a "Repositioning"), and (ii) Lessor and
Lessee so agree in writing, then Lessor and Lessee shall, in good faith,
negotiate modifications to the Base Rent, Suite Revenue Breakpoint and
Percentage Rent to adjust (i.e., increase, decrease or reallocate among revenue
categories) such Base Rent, Suite Revenue

                                      24
<PAGE>

Breakpoint and Percentage Rent to reflect such change in basic assumptions for
the affected periods, using the same methodology and other basic assumptions as
were initially utilized in determining the Base Rent, Suite Revenue Breakpoint
and Percentage Rent hereunder. If Lessor and Lessee are unable to agree, within
thirty (30) days after the date of written certification from either Lessee or
Lessor to the other party that a good faith dispute exists, as to the existence
of the occurrence of a Repositioning or the adjustments to be made to the
amounts or percentages for the Base Rent, Suite Revenue Breakpoint and
Percentage Rent hereunder as a result of any repositioning, the dispute may be
submitted by either party to arbitration under Section 25.2 hereof for
resolution (during which period Lessee shall continue to pay Base Rent and
Percentage Rent as required under Section 3.1 of this Lease); provided, however,
that for purposes of applying the procedures in Section 25.3 to such
arbitration, the target deadline therein for concluding the arbitration shall be
shortened from ninety (90) days to thirty (30) days.


                                   ARTICLE 4
                                   ---------
                       ANNUAL BUDGETS; BOOKS AND RECORDS

     4.1.  Annual Budget.  Not later than thirty (30) days prior to the
           --------------
commencement of each Fiscal Year, Lessee shall submit the Annual Budget to
Lessor. The Annual Budget shall contain the following, to the extent included in
the operating budgets and capital budgets provided to Lessee by Manager under
the management agreement for the Hotel:

           (a)  Lessee's reasonable estimate of Gross Revenues (including room
rates and Suite Revenues), Gross Operating Expenses, and Gross Operating Profits
for the forthcoming Fiscal Year itemized on schedules on a quarterly basis as
approved by Lessor and Lessee, as same may be revised or replaced from time to
time by Lessee and approved by Lessor, together with the assumptions, in
narrative form, forming the basis of such schedules.

           (b)  An estimate of the amounts to be dedicated to the repair,
replacement, or refurbishment of Furniture and Equipment.

           (c)  An estimate of any amounts Lessor will be required to provide
for required or desirable capital improvements to the Hotel or any of its
components.

           (d)  A cash flow projection.

           (e)  A business plan, which shall describe business objectives and
strategies for the forthcoming Fiscal Year, and shall include without limitation
an analysis of the market area in which the Hotel competes, a comparison of the
Hotel and its business with competitive hotels, an analysis of categories of
potential guests, and a description of sales and marketing activities designed
to achieve and implement identified objectives and strategies.

                                      25
<PAGE>

     4.2.  Books and Records.  Lessee shall keep full and adequate books of
           ------------------
account and other records reflecting the results of operation of the Hotel on an
accrual basis, all in accordance with generally accepted accounting principles
and the obligations of Lessee under this Lease. The books of account and all
other records relating to or reflecting the operation of the Hotel shall be kept
either at the Hotel or at Lessee's offices in Richmond, Virginia or at Manager's
central offices, and shall be available to Lessor and its representatives and
its auditors or accountants, at all reasonable times, upon prior written notice
to Lessee and Manager, for examination, audit, inspection, and transcription;
provided, however that Lessor may only inspect or audit records in Manager's
possession subject to the terms of Lessee's access thereto under the Management
Agreement. All of such books and records pertaining to the Hotel including,
without limitation, books of account, guest records and front office records, at
all times shall be the property of Lessor and shall not be removed from the
Hotel or Lessee's offices or Manager's central offices (but may be moved among
any of the foregoing) by Lessee without Lessor approval.


                                   ARTICLE 5
                                   ---------
                           IMPOSITIONS; HOTEL COSTS

     5.1.  Payment of Impositions.  Subject to Section 12.2 (relating to
           -----------------------
permitted contests), Lessee will pay, or cause to be paid, all Impositions
(other than Real Estate Taxes and Personal Property Taxes, which shall be paid
by Lessor) before any fine, penalty, interest or cost may be added for non-
payment, such payments to be made directly to the taxing or other authorities
where feasible, and will promptly furnish to Lessor copies of official receipts
or other satisfactory proof evidencing such payments. Lessee's obligation to pay
such Impositions shall be deemed absolutely fixed upon the date such Impositions
become a lien upon the Leased Property or any part thereof. If any such
Imposition may, at the option of the taxpayer, lawfully be paid in installments
(whether or not interest shall accrue on the unpaid balance of such Imposition),
Lessee may exercise the option to pay the same (and any accrued interest on the
unpaid balance of such Imposition) in installments and in such event, shall pay
such installments during the Term hereof (subject to Lessee's right of contest
pursuant to the provisions of Section 12.2) as the same respectively become due
and before any fine, penalty, premium, further interest or cost may be added
thereto. Lessor, at its expense, shall, to the extent required or permitted by
applicable law, prepare and file all tax returns in respect of Lessor's net
income, gross receipts, sales and use, single business, transaction privilege,
rent, ad valorem, franchise taxes, Real Estate Taxes, Personal Property Taxes
and taxes on its capital stock, and Lessee, at its expense, shall, to the extent
required or permitted by applicable laws and regulations, prepare and file all
other tax returns and reports in respect of any Imposition as may be required by
governmental authorities. If any refund shall be due from any taxing authority
in respect of any Imposition paid by Lessee, the same shall be paid over to or
retained by Lessee if no Event of Default shall have occurred hereunder and be
continuing. If an Event of Default shall have occurred and be continuing, any
such refund shall be paid over to or retained by Lessor. Any such funds retained
by Lessor due to an Event of Default shall be applied as provided in Article 16.
Lessor and Lessee shall, upon request of the other, provide such data as is
maintained by the party to whom the request is made with respect to the Leased
Property as may be necessary to prepare any required returns and reports. Lessee
shall file all Personal Property Tax returns in such jurisdictions where it is
legally required so to file. Lessor, to the extent it possesses the same, and
Lessee, to the extent it possesses the same, will provide the other party,

                                      26
<PAGE>

upon request, with cost and depreciation records necessary for filing returns
for any property classified as personal property. Where Lessor is legally
required to file Personal Property Tax returns, Lessee shall provide Lessor with
copies of assessment notices in sufficient time for Lessor to file a protest.
Lessor may, upon Notice to Lessee, at Lessor's option and at Lessor's sole
expense, protest, appeal, or institute such other proceedings (in its or
Lessee's name) as Lessor may deem appropriate to effect a reduction of real
estate or personal property assessments for those Impositions to be paid by
Lessor, and Lessee, at Lessor's expense as aforesaid, shall fully cooperate with
Lessor in such protest, appeal, or other action. Lessor hereby agrees to
indemnify, defend, and hold harmless Lessee from and against any claims,
obligations, liabilities and loss against or incurred by Lessee in connection
with such cooperation. Billings for reimbursement of Personal Property Taxes by
Lessee to Lessor shall be accompanied by copies of a bill therefor and payments
thereof which identify the personal property with respect to which such payments
are made. Lessor, however, reserves the right to effect any such protest, appeal
or other action and, upon Notice to Lessee, shall control any such activity,
which shall then go forward at Lessor's sole expense. Upon such Notice, Lessee,
at Lessor's expense, shall cooperate fully with such activities.

     5.2.  Notice of Impositions.  Lessor shall give prompt Notice to Lessee of
           ----------------------
all Impositions payable by Lessee hereunder of which Lessor at any time has
knowledge, provided that Lessor's failure to give any such Notice shall in no
way diminish Lessee's obligations hereunder to pay such Impositions, but such
failure shall obviate any default hereunder for a reasonable time after Lessee
receives Notice of any Imposition which it is obligated to pay during the first
taxing period applicable thereto.

     5.3.  Adjustment of Impositions.  Impositions imposed in respect of the
           --------------------------
tax-fiscal period during which the Term terminates shall be adjusted and
prorated between Lessor and Lessee, whether or not such Imposition is imposed
before or after such termination, and Lessee's obligation to pay its prorated
share thereof after termination shall survive such termination.

     5.4.  Utility Charges.  Lessee will be solely responsible for obtaining and
           ----------------
maintaining utility services to the Leased Property and will pay or cause to be
paid all charges for electricity, gas, oil, water, sewer and other utilities
used in the Leased Property during the Term.

     5.5.  Insurance Premiums.  Lessee will pay or cause to be paid all premiums
           -------------------
for the insurance coverage's required to be maintained by it under Article 13.

     5.6.  Franchise Fees.  Lessee will maintain in full force and effect, and
           ---------------
pay or cause to be paid all fees and other charges payable pursuant to, any
Franchise Agreement with respect to the Hotel.

     5.7.  Ground Rent.  In the event that Lessor's interest in the Land is
           ------------
pursuant to a Ground Lease or sublease, Lessor shall be solely responsible for
the payment of any ground rent, building rent or subrent, as the case may be,
due with respect to the Leased Property.

                                      27
<PAGE>

                                   ARTICLE 6
                                   ---------
                  LEASED PROPERTY; LESSEE'S PERSONAL PROPERTY

     6.1.  Ownership of the Leased Property.  Lessee acknowledges that the
           ---------------------------------
Leased Property is the property of Lessor and that Lessee has only the right to
the possession and use of the Leased Property upon the terms and conditions of
this Lease.

     6.2.  Lessee's Personal Property.  Lessee will acquire and maintain
           ---------------------------
throughout the Term such Inventory as is required to operate the Leased Property
in the manner contemplated by this Lease. Lessee may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of personal property
(including Inventory) owned by Lessee. Lessee, at the commencement of the Term,
and from time to time thereafter, shall provide Lessor with an accurate list of
all such items of Lessee's personal property (collectively, the "Lessee's
Personal Property"). Lessee may, subject to the first sentence of this Section
6.2 and the conditions set forth below, remove any of Lessee's Personal Property
set forth on such list at any time during the Term or upon the expiration or any
prior termination of the Term. All of Lessee's Personal Property, other than
Inventory, not removed by Lessee within ten (10) days following the expiration
or earlier termination of the Term shall be considered abandoned by Lessee and
may be appropriated, sold, destroyed or otherwise disposed of by Lessor without
first giving Notice thereof to Lessee, without any payment to Lessee and without
any obligation to account therefor. Lessee will, at its expense, restore the
Leased Property to the condition required by Subsection 2.3(g), including repair
of all damage to the Leased Property caused by the removal of Lessee's Personal
Property, whether effected by Lessee or Lessor. Upon the expiration or earlier
termination of the Term, Lessor or its designee shall have the option to
purchase all Inventory on hand at the Leased Property at the time of such
expiration or termination for a sale price equal to the fair market value of
such Inventory. Lessee may make such financing arrangements, title retention
agreements, leases or other agreements with respect to Lessee's Personal
Property as it sees fit provided that Lessee first advises Lessor of any such
arrangement and such arrangement expressly provides that in the event of
Lessee's default thereunder, Lessor (or its designee) may assume Lessee's
obligations and rights under such arrangement.

     6.3.  Lessor's Lien.  To the fullest extent permitted by applicable law,
           --------------
Lessor is granted a lien and security interest on all Lessee's personal property
now or hereinafter placed in or upon the Leased Property, and such lien and
security interest shall remain attached to such Lessee's personal property until
payment in full of all Rent and satisfaction of all of Lessee's obligations
hereunder; provided, however, Lessor shall subordinate its lien and security
interest to that of any non-Affiliate of Lessee which finances such Lessee's
personal property or any non-Affiliate conditional seller of such Lessee's
personal property, the terms and conditions of such subordination to be
satisfactory to Lessor in the exercise of reasonable discretion. Lessee shall,
upon the request of Lessor, execute such financing statements or other documents
or instruments reasonably requested by Lessor to perfect the lien and security
interests herein granted. Lessee hereby authorizes Lessor to execute and file
financing statements signed only be a representative of Lessor covering the
security interest of Lessor in Lessee's personal property.

                                      28
<PAGE>

     6.4.  Lessor's Option to Purchase Assets of Lessee.  Effective on not less
           ---------------------------------------------
than ninety (90) days' prior Notice given at any time within one hundred eighty
(180) days before the expiration of the Term, but not later than ninety (90)
days prior to such expiration, or upon such shorter Notice period as shall be
appropriate if this Lease is terminated prior to its expiration date, Lessor
shall have the option to purchase all (but not less than all) of the assets of
Lessee, tangible and intangible, relating to the Leased Property (other than
this Lease), at the expiration or termination of this Lease for an amount
(payable in cash on the expiration date of this Lease) equal to the fair market
value thereof as appraised in conformity with Article 24, except that the
appraisers need not be members of the American Institute of Real Estate
Appraisers, but rather shall be appraisers having at least ten (10) years'
experience in valuing similar assets. Notwithstanding any such purchase, Lessor
shall obtain no rights to any trade name or logo used in connection with the
Franchise Agreement unless separate agreement as to such use is reached with the
applicable franchisor.

                                   ARTICLE 7
                                   ---------
                     CONDITION AND USE OF LEASED PROPERTY

     7.1.  Condition of the Leased Property.  Lessee acknowledges receipt and
           ---------------------------------
delivery of possession of the Leased Property. Lessee has examined and otherwise
has knowledge of the condition of the Leased Property and has found the same to
be satisfactory for its purposes hereunder. Lessee is leasing the Leased
Property "as is" in its present condition. Lessee waives any claim or action
against Lessor in respect of the condition of the Leased Property. LESSOR MAKES
NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED
PROPERTY, OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT THE LEASED
PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT. Provided,
however, to the extent permitted by law, Lessor hereby assigns to Lessee all of
Lessor's rights to proceed against any predecessor in title (other than any
Affiliate of Lessee which conveyed the Property to Lessor) for breaches of
warranties or representations or for latent defects in the Leased Property.
Lessor shall fully cooperate with Lessee in the prosecution of any such claim,
in Lessor's or Lessee's name, all at Lessee's sole cost and expense. Lessee
hereby agrees to indemnify, defend and hold harmless Lessor from and against any
claims, obligations and liabilities against or incurred by Lessor in connection
with such cooperation.

     7.2.  Use of the Leased Property.
           ---------------------------

           (a)  Lessee covenants that it will proceed with all due diligence and
will exercise reasonable efforts to obtain and to maintain all Licenses and
other approvals needed to use and operate the Leased Property and the Hotel
under applicable local, state and federal law.

           (b)  Lessee shall use or cause to be used the Leased Property only as
a Homewood Suites(R) all-suite hotel facility, and for such other uses as may be
necessary or incidental to such use or such other use as otherwise approved by
Lessor (the "Primary Intended

                                      29
<PAGE>

Use"). Lessee shall not use the Leased Property or any portion thereof for any
other use without the prior written consent of Lessor, which consent may be
granted, denied or conditioned in Lessor's sole discretion. No use shall be made
or permitted to be made of the Leased Property, and no acts shall be done, which
will cause the cancellation or increase the premium of any insurance policy
covering the Leased Property or any part thereof (unless another adequate policy
satisfactory to Lessor is available and Lessee pays any premium increase), nor
shall Lessee sell or permit to be kept, used or sold in or about the Leased
Property any article which may be prohibited by law or fire underwriter's
regulations. Lessee shall, at its sole cost, comply with all of the requirements
pertaining to the Leased Property of any insurance board, association,
organization or company necessary for the maintenance of insurance, as herein
provided, covering the Leased Property and Lessee's Personal Property.

           (c)  Subject to the provisions of Articles 14, 15, 18 and 21, Lessee
covenants and agrees that during the Term it will (1) operate continuously the
Leased Property as a hotel facility, (2) keep in full force and effect and
comply with all the provisions of the Franchise Agreement and the Management
Agreement, (3) not terminate or amend the Franchise Agreement or the Management
Agreement without the consent of Lessor (which shall not be unreasonably
withheld or delayed), (4) maintain appropriate certifications and Licenses for
such use and (5) seek to maximize the Gross Revenues generated therefrom
consistent with sound business practices.

           (d)  Lessee shall not commit or suffer to be committed any waste on
the Leased Property, or in the Hotel, nor shall Lessee cause or permit any
nuisance thereon.

           (e)  Lessee shall neither suffer nor permit the Leased Property or
any portion thereof, or Lessee's Personal Property, to be used in such a manner
as (1) might reasonably tend to impair Lessor's (or Lessee's, as the case may
be) title thereto or to any portion thereof, or (2) may reasonably make possible
a claim or claims of adverse usage or adverse possession by the public, as such,
or of implied dedication of the Leased Property or any portion thereof, except
as necessary in the ordinary and prudent operation of the Hotel on the Leased
Property.

     7.3.  Lessor to Grant Easements, Etc.  Lessor will, from time to time, so
           -------------------------------
long as no Event of Default has occurred and is continuing, at the request of
Lessee and at Lessee's cost and expense (but subject to the approval of Lessor,
which approval shall not be unreasonably withheld or delayed), (a) grant
easements and other rights in the nature of easements with respect to the Leased
Property to third parties, (b) release existing easements or other rights in the
nature of easements which are for the benefit of the Leased Property, (c)
dedicate or transfer unimproved portions of the Leased Property for road,
highway or other public purposes, (d) execute petitions to have the Leased
Property annexed to any municipal corporation or utility district, (e) execute
amendments to any covenants and restrictions affecting the Leased Property and
(f) execute and deliver to any Person any instrument appropriate to confirm or
effect such grants, releases, dedications, transfers, petitions and amendments
(to the extent of its interests in the Leased Property), but only upon delivery
to Lessor of an Officer's Certificate stating that such grant, release,
dedication, transfer, petition or amendment does not interfere with the proper
conduct of the business of Lessee on the Leased Property and does not materially
reduce the value of the Leased Property.

                                      30
<PAGE>

                                   ARTICLE 8
                                   ---------
             LESSEE'S COMPLIANCE WITH LAW; ENVIRONMENTAL COVENANTS

     8.1. Compliance with Legal and Insurance Requirements, Etc. Subject to
          -----------------------------------------------------
Subsection 8.3(b) below and Section 12.2 (relating to permitted contests),
Lessee, at its expense, will promptly (a) comply with all applicable Legal
Requirements and Insurance Requirements in respect of the use, operation,
maintenance, repair and restoration of the Leased Property (excluding any repair
or restoration of any portion of the Leased Property required to be made by
Lessor pursuant to Subsection 9.1(b) below, which repair shall be made by
Lessor), and (b) procure, maintain and comply with all appropriate Licenses and
other authorizations required for any use of the Leased Property and Lessee's
Personal Property then being made, and for the proper erection, installation,
operation and maintenance of the Leased Property or any part thereof.

     8.2. Legal Requirement Covenants.
          ---------------------------

     (a)  Subject to Subsection 8.3(b) and Subsection 9.1(b) below, Lessee
covenants and agrees that the Leased Property and Lessee's Personal Property
shall not be used for any unlawful purpose, and that Lessee shall not permit or
suffer to exist any unlawful use of the Leased Property by others.  Lessee shall
acquire and maintain all appropriate licenses, certifications, permits and other
authorizations and approvals needed to operate the Leased Property in its
customary manner for the Primary Intended Use, and any other lawful use
conducted on the Leased Property as may be permitted from time to time
hereunder.  Lessee further covenants and agrees that Lessee's use of the Leased
Property and maintenance, alteration, and operation of the same, and all parts
thereof, shall at all times conform to all Legal Requirements, unless the same
are finally determined by a court of competent jurisdiction to be unlawful (and
Lessee shall cause all sub-tenants, invitees or others within its control so to
comply with all Legal Requirements).  Lessee may, however, upon prior Notice to
Lessor, contest the legality or applicability of any such Legal Requirement or
any licensure or certification decision if Lessee maintains such action in good
faith, with due diligence, without prejudice to Lessor's rights hereunder, and
at Lessee's sole expense.  If by the terms of any such Legal Requirement
compliance therewith pending the prosecution of any such proceeding may legally
be delayed without the occurrence of any charge or liability of any kind, or the
filing of any lien, against the Hotel or Lessee's leasehold interest therein and
without subjecting Lessee or Lessor to any liability, civil or criminal, for
failure so to comply therewith, Lessee may delay compliance therewith until the
final determination of such proceeding.  If any lien, charge or civil or
criminal liability would be incurred by reason of any such delay, Lessee, on the
prior written consent of Lessor, which consent shall not be unreasonably
withheld or delayed, may nonetheless contest as aforesaid and delay as aforesaid
provided that such delay would not subject Lessor to criminal liability and
Lessee both (a) furnishes to Lessor security reasonably satisfactory to Lessor
against any loss or injury by reason of such contest or delay and (b) prosecutes
the contest with due diligence and in good faith.

          (b)  As between Lessor and Lessee, Lessee is solely responsible for
all liabilities or obligations of any kind with respect to employees at the
Leased Property during the Term. Without limiting the generality of the
foregoing sentence, Lessee is solely responsible for any required compliance
with the Worker Adjustment, Retraining and Notification Act of 1988 (the "WARN
Act") or any similar state law applicable to the Leased Property; any required
compliance

                                      31
<PAGE>

with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"); and all alleged and actual obligations and claims arising from or
relating to any employment agreement, collective bargaining agreement or
employee benefit plans, any grievances, arbitrations, or unfair labor practice
charges, and relating to compliance with any applicable state or federal labor
employment law, including but not limited to all laws pertaining to
discrimination, workers' compensation, unemployment compensation, occupational
safety and health, unfair labor practices, family and medical leave, and wages,
hours or employee benefits. Lessee agrees to indemnify and defend and hold
harmless Lessor from and against any claims relating to any of the foregoing
matters. Lessee further agrees to reimburse Lessor for any and all losses,
damages, costs, expenses, liabilities and obligations of any kind, including
without limitation reasonable attorney's fees and other legal costs and
expenses, incurred by Lessor in connection with any of the foregoing matters.

          (c)  Notwithstanding the Lessee's obligations under Section 8.1 to
obtain and maintain all permits and licenses required for the use of the Leased
Property, and without limiting any obligations of Lessee hereunder, if (i)
applicable law requires that the owner (rather than a lessee) of a hotel be the
licensee under the required liquor license for the Hotel or (ii) the former
owner of the Hotel is holding the liquor license and continuing to exercise
management and supervision of the liquor services at the Hotel pending transfer
of the license to Lessor or Lessee, the Lessee shall indemnify and hold Lessor
harmless from any liability, damages or claims (a) arising in connection with
liquor operations at the Hotel during such period of time following the
Commencement Date, except to the extent caused by Lessor's gross negligence or
willful misconduct or (b) made by or through the former owner with respect to
liquor operations  at the Hotel following the Commencement Date.

     8.3. Environmental Covenants. Lessor and Lessee (in addition to, and not in
          -----------------------
diminution of, Lessee's covenants and undertakings in Sections 8.1 and 8.2
hereof) covenant and agree as follows:

          (a)  At all times hereafter until the later of (i) such time as all
liabilities, duties or obligations of Lessee to Lessor under the Lease have been
satisfied in full and (ii) such time as Lessee completely vacates the Leased
Property and surrenders possession of the same to Lessor, Lessee shall fully
comply with all Environmental Laws applicable to the Leased Property and the
operations thereon.  Lessee agrees to give Lessor prompt Notice of (1) all
Environmental Liabilities; (2) all pending, threatened or anticipated
Proceedings, and all notices, demands, requests or investigations, relating to
any Environmental Liability or relating to the issuance, revocation or change in
any Environmental Authorization required for operation of the Leased Property;
(3) all Releases at, on, in, under or in any way affecting the Leased Property,
or any Release known by Lessee at, on, in or under any property adjacent to the
Leased Property; and (4) all facts, events or conditions that could reasonably
lead to the occurrence of any of the above-referenced matters.

          (b) Lessor hereby agrees to defend, indemnify and save harmless any
and all Lessee Indemnified Parties from and against any and all Environmental
Liabilities other than (i) Environmental Liabilities resulting from conditions
disclosed in any environmental audit obtained by Lessor and provided to Lessee
prior to the execution of this Lease (the "Environmental Audit"),

                                      32
<PAGE>

and (ii) Environmental Liabilities which were caused by the acts or negligent
failures to act of Lessee.

          (c)  Lessee hereby agrees to defend, indemnify and save harmless any
and all Lessor Indemnified Parties from and against any and all Environmental
Liabilities which were (i) resulting from conditions disclosed in the
Environmental Audit, and (ii) caused by the acts or negligent failures to act of
Lessee.

          (d)  If any Proceeding is brought against any Indemnified Party in
respect of an Environmental Liability with respect to which such Indemnified
Party may claim indemnification under either Subsection 8.3(b) or (c), the
Indemnifying Party, upon request, shall at its sole expense resist and defend
such Proceeding, or cause the same to be resisted and defended by counsel
designated by the Indemnified Party and approved by the Indemnifying Party,
which approval shall not be unreasonably withheld or delayed; provided, however,
that such approval shall not be required in the case of defense by counsel
designated by any insurance company undertaking such defense pursuant to any
applicable policy of insurance.  Each Indemnified Party shall have the right to
employ separate counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel will be at the sole expense
of such Indemnified Party unless such counsel has been approved by the
Indemnifying Party, which approval shall not be unreasonably withheld or
delayed.  The Indemnifying Party shall not be liable for any settlement of any
such Proceeding made without its consent, which shall not be unreasonably
withheld or delayed, but if settled with the consent of the Indemnifying Party,
or if settled without its consent (if its consent shall be unreasonably withheld
or delayed), or if there be a final, nonappealable judgment for an adversary
party in any such Proceeding, the Indemnifying Party shall indemnify and hold
harmless the Indemnified Parties from and against any liabilities and loss
incurred by such Indemnified Parties by reason of such settlement or judgement.

          (e)  At any time any Indemnified Party has reason to believe
circumstances exist which could reasonably result in an Environmental Liability,
upon reasonable prior Notice to Lessee and Manager stating such Indemnified
Party's basis for such belief, an Indemnified Party shall be given immediate
access to the Leased Property (including, but not limited to, the right to enter
upon, investigate, drill wells, take soil borings, excavate, monitor, test, cap
and use available land for the testing of remedial technologies), Lessee's
employees, and to all relevant documents and records regarding the matter as to
which a responsibility, liability or obligation is asserted or which is the
subject of any Proceeding; provided that such access may he conditioned or
restricted as may be reasonably necessary to ensure compliance with law and the
safety of personnel and facilities or to protect confidential or privileged
information.  All Indemnified Parties requesting such immediate access and
cooperation shall endeavor to coordinate such efforts to result in as minimal
interruption of the operation of the Leased Property as practicable.

          (f)  The indemnification rights and obligations provided for in this
Article 8 shall be in addition to any indemnification rights and obligations
provided for elsewhere in this Lease.

          (g)  The indemnification rights and obligations provided for in this
Article 8 shall survive the termination of this Lease.

                                      33
<PAGE>

     For purposes of this Section 8.3, all amounts for which any Indemnified
Party seeks indemnification shall be computed net of (a) any actual income tax
benefit resulting therefrom to such Indemnified Party, (b) any insurance
proceeds received (net of tax effects) with respect thereto, and (c) any amounts
recovered (net of tax effects) from any third parties based on claims the
Indemnified Party has against such third parties which reduce the damages that
would otherwise be sustained; provided that in all cases, the timing of the
receipt or realization of insurance proceeds or income tax benefits or
recoveries from third parties shall be taken into account in determining the
amount of reduction of damages.  Each Indemnified Party agrees to use its
reasonable efforts to pursue, or assign to Lessee or Lessor, as the case may be,
any claims or rights it may have against any third party which would materially
reduce the amount of damages otherwise incurred by such Indemnified Party.

     Notwithstanding anything to the contrary contained in this Lease, if Lessor
shall become entitled to the possession of the Leased Property by virtue of the
termination of the Lease or repossession of the Leased Property, then Lessor may
assign its indemnification rights under this Section 8.3 (but not any other
rights under this Section 8.3) to any Person to whom Lessor subsequently
transfers the Leased Property, subject to the following conditions and
limitations, each of which shall be deemed to be incorporated into the terms of
such assignment, whether or not specifically referred to therein:

               (i)   The indemnification rights referred to in this section may
          be assigned only if a known Environmental Liability then exists or if
          a Proceeding is then pending or, to the knowledge of Lessee or Lessor,
          then threatened with respect to the Leased Property;

               (ii)  Such indemnification rights shall be limited to
          Environmental Liabilities relating to or specifically affecting the
          Leased Property; and

               (iii) Any assignment of such indemnification rights shall be
          limited to the immediate transferee of Lessor, and shall not extend to
          any such transferee's successors or assigns.

                                   ARTICLE 9
                                   ---------
            MAINTENANCE AND REPAIRS; ENCROACHMENTS AND RESTRICTIONS

     9.1.  Maintenance and Repairs.
           -----------------------

          (a)  Lessee, at its sole expense, will keep the Leased Property, and
all private roadways, sidewalks and curbs appurtenant thereto that are under
Lessee's control, including windows and plate glass, mechanical, electrical and
plumbing systems and equipment (including conduit and ductware), and non-load
bearing interior walls, and parking lot surfaces, in good order and repair,
except (i) for ordinary wear and tear (whether or not the need for such repairs
occurred as a result of Lessee's use, any prior use, the elements or the age of
the Leased Property, or any portion thereof) and (ii) to the extent of damage
caused by Lessor's gross negligence or willful misconduct or that of its
employees or agents, and, except as otherwise provided in Subsection 9.1(b),
Article 14 or Article 15, with reasonable promptness, make all necessary and
appropriate

                                      34
<PAGE>

repairs replacements, and improvements thereto of every kind and nature, whether
interior or exterior ordinary or extraordinary, foreseen or unforeseen or
arising by reason of a condition existing prior to the commencement of the Term
of this Lease (concealed or otherwise), or required by any governmental agency
having jurisdiction over the Leased Property, except as to the structural
elements of the Leased Improvements. Lessee, however, shall be permitted to
prosecute claims against Lessor's predecessors in title for breach of any
representation or warranty or for any latent defects in the Leased Property to
be maintained by Lessee unless Lessor is already diligently pursuing such a
claim. All repairs shall, to the extent reasonably achievable, be at least
equivalent in quality to the original work. Lessee will not take or omit to take
any action, the taking or omission of which might materially impair the value or
the usefulness of the Leased Property or any part thereof for its Primary
Intended Use.

          (b)  Notwithstanding Lessee's obligations under Subsection 9.1(a)
above, except to the extent of damage caused by Lessee's negligence or willful
misconduct or that of its employees or agents, Lessor shall be required to bear
the cost of maintaining any underground utilities and the structural elements of
the Leased Improvements, including exterior walls and the roof of the Hotel (but
excluding windows and plate glass, mechanical, electrical and plumbing systems
and equipment, including conduit and ductware, and non-load bearing walls, and
parking lot surfaces).  Except as set forth in the preceding sentence and in
Section 10.5, Lessor shall not under any circumstances be required to build or
rebuild any improvement on the Leased Property, or to make any repairs,
replacements, alterations, restorations or renewals of any nature or description
to the Leased Property, whether ordinary or extraordinary, foreseen or
unforeseen, or to make any expenditure whatsoever with respect thereto, in
connection with this Lease, or to maintain the Leased Property in any way.
Lessee hereby waives, to the extent permitted by law, the right to make repairs
at the expense of Lessor, pursuant to any law in effect at the time of the
execution of this Lease or hereafter enacted, except following default by Lessor
under this Lease, to the extent of repairs (for which Lessor is obligated
hereunder) required to be made in order for the Hotel, and Lessee's use thereof,
to comply with Lessee's obligations under the Franchise Agreement and the
Management Agreement.  Lessor shall have the right to give, record and post, as
appropriate, notices of nonresponsibility under any mechanic's lien laws now or
hereafter existing.

          (c)  Nothing contained in this Lease and no action or inaction by
Lessor shall be construed as (1) constituting the request of Lessor, expressed
or implied, to any contractor, subcontractor, laborer, materialman or vendor to
or for the performance of any labor or services or the furnishing of any
materials or other property for the construction, alteration, addition, repair
or demolition of or to the Leased Property or any part thereof, or (2) giving
Lessee any right, power or permission to contract for or permit the performance
of any labor or services or the furnishing of any materials or other property in
such fashion as would permit the making of any claim against Lessor in respect
thereof or to make any agreement that may create, or in any way be the basis for
any right, title, interest, lien, claim or other encumbrance upon the estate of
Lessor in the Leased Property, or any portion thereof.

     9.2. Encroachments, Restrictions, Etc. Lessor represents and warrants that
          --------------------------------
the Leased Improvements do not materially encroach upon any property, street or
right-of-way adjacent to the Leased Property, or violate the agreements or
conditions contained in any lawful restrictive

                                      35
<PAGE>

covenant or other agreement affecting the Leased Property, or any part thereof,
or impair the rights of others under any easement or right-of-way to which the
Leased Property is subject. Except to the extent that such representation and
warranty is breached by Lessor, if any of the Leased Improvements, at any time
hereafter, materially encroach upon any property, street or right-of-way
adjacent to the Leased Property, or violate the agreements or conditions
contained in any lawful restrictive covenant or other agreement affecting the
Leased Property, or any part thereof, or impair the rights of others under any
easement or right-of-way to which the Leased Property is subject, then promptly
upon the request of Lessor or at the behest of any Person affected by any such
encroachment, violation or impairment, Lessee shall, at its expense, subject to
its right to contest the existence of any encroachment, violation or impairment
and in such case, in the event of an adverse final determination, either (a)
obtain valid and effective waivers or settlements of all claims, liabilities and
damages resulting from each such encroachment, violation or impairment, whether
the same shall affect Lessor or Lessee or (b) make such changes in the Leased
Improvements, and take such other actions, as Lessee in the good faith exercise
of its judgment deems reasonably practicable to remove such encroachment, and to
end such violation or impairment, including, if necessary, the alteration of any
of the Leased Improvements, and in any event take all such actions as may be
necessary in order to be able to continue the operation of the Leased
Improvements for the Primary Intended Use substantially in the manner and to the
extent the Leased Improvements were operated prior to the assertion of such
violation, impairment or encroachment. Any such alteration shall be made in
conformity with the applicable requirements of Article 10. Lessee's obligations
under this Section 9.2 shall be in addition to and shall in no way discharge or
diminish any obligation of any insurer under any policy of title or other
insurance held by Lessor.

                                  ARTICLE 10
                                  ----------
                  ALTERATIONS AND IMPROVEMENTS; FF&E RESERVE

     10.1.  Alterations. After receiving approval of Lessor, which approval
            -----------
shall not be unreasonably withheld or delayed, Lessee shall have the right to
make such additions, modifications or improvements to the Leased Property from
time to time as Lessee deems desirable for its permitted uses and purposes,
provided that such action will not significantly alter the character or purposes
or significantly detract from the value or operating efficiency thereof and will
not significantly impair the revenue-producing capability of the Leased Property
or adversely affect the ability of Lessee to comply with the provisions of this
Lease. The cost of such additions, modifications or improvements to the Leased
Property shall be paid by Lessee, and all such additions, modifications and
improvements shall, without payment by Lessor at any time, be included under the
terms of this Lease and upon expiration or earlier termination of this Lease
shall pass to and become the property of Lessor.

     10.2.  Salvage. All materials which are scrapped or removed in connection
            -------
with the making of repairs required by Articles 9 or 10 shall be or become the
property of Lessor or Lessee depending on which party is paying for or providing
the financing for such work.

     10.3.  Joint Use Agreements. If Lessee constructs additional improvements
            --------------------
that are connected to the Leased Property or share maintenance facilities, HVAC,
electrical, plumbing or other systems, utilities, parking or other amenities,
the parties shall enter into a mutually agreeable

                                      36
<PAGE>

cross-easement or joint use agreement, the form of which has been approved in
advance by Lessor, to make available necessary services and facilities in
connection with such additional improvements, to protect each of their
respective interests in the properties affected, and to provide for separate
ownership, use, and/or financing of such improvements.

     10.4.  Initial Upgrade of Leased Improvements. Lessee desires to install,
            --------------------------------------
construct and complete the improvements, alterations, upgrades and
refurbishments in the Leased Improvements (collectively, "Lessee's Work")
necessary to qualify the Leased Improvements to operate under the Franchise
Agreement as a "Homewood Suites" hotel. Pursuant to the terms of the Work Letter
(the "Work Letter") attached hereto as Exhibit B, Lessee agrees to perform
Lessee's Work; provided, however, Lessor shall pay the costs actually incurred
by Lessee to perform Lessee's Work, subject to and in accordance with the terms
and conditions of the Work Letter. Lessee shall pay all increased taxes and
insurance on Lessee's Work or attributable thereto.

     10.5.  Furniture, Fixture and Equipment Allowance. Lessor shall be
            ------------------------------------------
obligated to pay Lessee, when and as required to meet the requirements of the
Franchise Agreement and the Management Agreement for a reserve for periodic
repair, replacement or refurbishing of furniture, fixtures and equipment that
constitute Leased Property, an amount equal up to five percent (5%) of Suite
Revenues monthly. Upon written request by Lessee to Lessor stating the specific
use to be made and the reasonable approval thereof by Lessor (or as otherwise
required by the franchisor under the Franchise Agreement or Manager under the
Management Agreement), such reserve funds (and additional funds of Lessor, if
necessary) shall be made available by Lessor for use by Lessee for replacement
or refurbishing of furniture, fixtures and equipment that constitute Leased
Property in connection with the Primary Intended Use; provided, however, that no
amounts made available under this Article shall be used to purchase property
(other than "real property" within the meaning of Treasury Regulations Section
1.856-3(d)), to the extent that doing so would cause Lessor to recognize income
other than "rents from real property" as defined in Section 856(d) of the Code.
Lessor's obligation shall be cumulative, but not compounded, and any amounts
that have accrued hereunder shall be payable in future periods for such uses and
in accordance with the procedure set forth herein. Lessee shall have no interest
in any accrued obligation of Lessor hereunder after the termination of this
Lease.


                                  ARTICLE 11
                                  ----------
                           COMPLIANCE WITH FRANCHISE

     11.1.  Compliance with Franchise Agreement and Management Agreement. To the
            ------------------------------------------------------------
extent any of the provisions of the Franchise Agreement or Management Agreement
impose a greater obligation on Lessee than the corresponding provisions of the
Lease, then Lessee shall be obligated to comply with, and to take all reasonable
actions necessary to prevent breaches or defaults under, the provisions of the
Franchise Agreement and the Management Agreement. It is the intent of the
parties hereto that Lessee shall comply in every respect with the provisions of
the Franchise Agreement and the Management Agreement so as to avoid any material
default thereunder during the term of this Lease. Lessee shall not terminate,
extend or enter into any material modification of the Franchise Agreement or the
Management Agreement without in each instance first obtaining Lessor's prior
written consent, which shall not be unreasonably withheld. Lessor and Lessee
agree

                                      37
<PAGE>

to cooperate with each other in the event it becomes necessary to obtain a
franchise extension or modification (or, at Lessor's option, a new franchise)
for the Leased Property, and in any transfer of the Franchise Agreement or
Management Agreement to Lessor or any designee of Lessor or any successor to
Lessee upon the termination of this Lease. In the event of expiration or
termination of a Franchise Agreement or Management Agreement, for whatever
reason, Lessor will have the right, in the exercise of its sole discretion, to
approve any new Franchise Agreement or Management Agreement for the Hotel.

                                  ARTICLE 12
                                  ----------
                         PERMITTED LIENS AND CONTESTS

     12.1.  Liens. Subject to the provisions of Section 12.2 relating to
            -----
permitted contests, Lessee will not directly or indirectly create or allow to
remain and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon the Leased Property or any
attachment, levy, claim or encumbrance in respect of the Rent, not including,
however, (a) this Lease, (b) the matters included as exceptions in the title
policy insuring Lessor's interest in the Leased Property, (c) restrictions,
liens and other encumbrances which are consented to in writing by Lessor or any
easements granted pursuant to the provisions of Section 7.3 of this Lease, (d)
liens for those taxes upon Lessor or the Leased Property which Lessee is not
required to pay hereunder, (e) subleases permitted by Article 20 hereof, (f)
liens for Impositions or for sums resulting from noncompliance with Legal
Requirements so long as (1) the same are not yet payable or are payable without
the addition of any fine or penalty or (2) such liens are in the process of
being contested as permitted by Section 12.2, (g) liens of mechanics, laborers,
materialmen, suppliers or vendors for sums either disputed or not yet due
provided that (1) the payment of such sums shall not be postponed under any
related contract for more than sixty (60) days after the completion of the
action giving rise to such lien and such reserve or other appropriate provisions
as shall be required by law or generally accepted accounting principles shall
have been made therefor or (2) any such liens are in the process of being
contested as permitted by Section 12.2 hereof, and (h) any liens which are the
responsibility of Lessor pursuant to the provisions of Article 22 of this Lease.

     12.2.  Permitted Contests. Lessee shall have the right to contest the
            ------------------
amount or validity of any Imposition to be paid by Lessee or any Legal
Requirement or Insurance Requirement or any lien, attachment, levy, encumbrance,
charge or claim ("Claims") not otherwise permitted by Section 12.1, by
appropriate legal proceedings in good faith and with due diligence (but this
shall not be deemed or construed in any way to relieve, modify or extend
Lessee's covenants to pay or its covenants to cause to be paid any such charges
at the time and in the manner as in this Section provided), on condition,
however, that such legal proceedings shall not operate to relieve Lessee from
its obligations hereunder and shall not cause the sale or risk the loss of any
portion of the Leased Property, or any part thereof, or cause Lessor or Lessee
to be in default under any mortgage, deed of trust, security deed or other
agreement encumbering the Leased Property or any interest therein. Upon the
request of Lessor, Lessee shall either (a) provide a bond or other assurance
reasonably satisfactory to Lessor that all Claims which may be assessed against
the Leased Property together with interest and penalties, if any, thereon will
be paid, or (b) deposit within the time otherwise required for payment with a
bank or trust company as trustee upon terms reasonably satisfactory to Lessor,
as security for the payment of such Claims, money in an amount

                                      38
<PAGE>

sufficient to pay the same, together with interest and penalties in connection
therewith, as to all Claims which may be assessed against or become a Claim on
the Leased Property, or any part thereof, in said legal proceedings. Lessee
shall furnish Lessor and any lender of Lessor with reasonable evidence of such
deposit within five (5) days of the same. Lessor agrees to join in any such
proceedings if the same be required legally to prosecute such contest of the
validity of such Claims; provided, however, that Lessor shall not thereby be
subjected to any liability or loss for the payment of any costs or expenses in
connection with any proceedings brought by Lessee; and Lessee covenants to
indemnify and save harmless Lessor from any such liabilities, losses, costs or
expenses. Lessee shall be entitled to any refund of any Claims and such charges
and penalties or interest thereon which have been paid by Lessee or paid by
Lessor and for which Lessor has been fully reimbursed. In the event that Lessee
fails to pay any Claims when due or to provide the security therefor as provided
in this Section and diligently to prosecute any contest of the same, Lessor may,
upon ten (10) days' advance Notice to Lessee, and Lessee's failure to correct
the same within such ten (10) day period, pay such charges together with any
interest and penalties and the same shall be repayable by Lessee to Lessor as
Additional Charges at the next Payment Date provided for in this Lease;
provided, however, that should Lessor reasonably determine that the giving of
such Notice would risk loss to the Leased Property or cause damage to Lessor,
then Lessor shall give such Notice as is practical under the circumstances.
Lessor reserves the right to contest any of the Claims at its expense not
pursued by Lessee. Lessor and Lessee agree to cooperate in coordinating the
contest of any Claims.

                                  ARTICLE 13
                                  ----------
                            INSURANCE REQUIREMENTS

     13.1.  General Insurance Requirements. During the Term of this Lease,
            ------------------------------
Lessor and Lessee shall at all times keep the Leased Property insured with the
kinds and amounts of insurance described below, or such other insurance
coverage(s) as may be required by the Franchise Agreement. This insurance shall
be written by companies authorized to issue insurance in the State. The policies
must name Lessor and/or Lessee, as applicable, as the insured or as an
additional named insured, as the case may be. Losses shall be payable to Lessor
or Lessee as provided in this Lease. Any loss adjustment shall require the
written consent of Lessor and Lessee, each acting reasonably and in good faith.
Evidence of insurance shall be deposited with Lessor. The policies on the Leased
Property, including the Leased Improvements, Fixtures and Lessee's Personal
Property, shall include the following:

          (a)  Lessor shall obtain and maintain, at its own expense:

               (i)   Building insurance on the "Special Form" (formerly "All
          Risk" form) (including earthquake and flood in reasonable amounts as
          determined by Lessor) in an amount not less than 100% of the then full
          replacement cost thereof (as defined in Section 13.2) or such other
          amount which is acceptable to Lessor and Lessee, and personal property
          insurance (on other than Lessee's Personal Property) on the "Special
          Form" in the full amount of the replacement cost thereof;

               (ii)  Insurance for loss or damage (direct and indirect) from
          steam boilers, pressure vessels or similar apparatus, now or hereafter
          installed in the Hotel, in the

                                      39
<PAGE>

          minimum amount of $5,000,000 or in such greater amounts as are then
          customary; and

               (iii) Loss of income insurance on the "Special Form", in the
          amount of one year of Base Rent and Additional Charges (to the extent
          quantifiable) for the benefit of Lessor.

          (b)  Lessee shall obtain and maintain, at its own expense:

               (i)   Personal property insurance on Lessee's Personal Property
          on the "Special Form" in the full amount of the replacement cost
          thereof;

               (ii)  Comprehensive general liability insurance, with amounts not
          less than $10,000,000 covering each of the following: bodily injury,
          death, or property damage liability per occurrence, personal and
          advertising injury, general aggregate, products and completed
          operations, with respect to Lessor, and "all risk legal liability"
          (including liquor law or "dram shop" liability, if liquor or alcoholic
          beverages are served on the Leased Property) with respect to Lessor
          and Lessee;

               (iii) Insurance covering such other hazards and in such amounts
          as may be customary for comparable properties in the area of the
          Leased Property and is available from insurance companies, insurance
          pools or other appropriate companies authorized to do business in the
          State at rates which are economically practicable in relation to the
          risks covered, as may be reasonably requested by Lessor;

               (iv)  Fidelity bonds with limits and deductibles as may be
          reasonably requested by Lessor, covering Lessee's employees in job
          classifications normally bonded under prudent hotel management
          practices in the United States or otherwise required by law;

               (v)   Worker's compensation insurance coverage for all persons,
          if any, employed by Lessee on the Leased Premises, to the extent
          necessary to protect Lessor and the Leased Property against Lessee's
          worker's compensation claims, such worker's compensation insurance to
          be in accordance with the requirements of applicable local, state and
          federal law;

               (vi)  Vehicle liability insurance for owned, non-owned, and hired
          vehicles, in the amount of $5,000,000; and

               (vii) Such other insurance as Lessor may reasonably request for
          facilities such as the Leased Property and the operation thereof.

     13.2.  Replacement Cost. The term "full replacement cost" as used herein
            ----------------
shall mean the actual replacement cost of the Leased Property requiring
replacement from time to time including an increased cost of construction
endorsement, if available, and the cost of debris removal. In the event either
party believes that full replacement cost (the then-replacement cost less such

                                      40
<PAGE>

exclusions) has increased or decreased at any time during the Lease Term, it
shall have the right to have such full replacement cost re-determined.

       13.3.   Waiver of Subrogation. All insurance policies carried by Lessor
               ---------------------
or Lessee covering the Leased Property, the Fixtures, the Hotel or Lessee's
Personal Property, including, without limitation, contents, fire and casualty
insurance, shall expressly waive any right of subrogation on the part of the
insurer against the other party. The parties hereto agree that their policies
will include such waiver clause or endorsement so long as the same are
obtainable without extra cost, and in the event of such an extra charge the
other party, at its election, may pay the same, but shall not be obligated to do
so.

       13.4.   Form Satisfactory, Etc.
               ----------------------

               (a)  All of the policies of insurance referred to in this Article
13 to be maintained by Lessee shall be written in a form, with deductibles and
by insurance companies satisfactory to Lessor. Lessee shall pay all of the
premiums therefor, and deliver such policies or certificates thereof to Lessor
prior to their effective date (and, with respect to any renewal policy, thirty
(30) days prior to the expiration of the existing policy), and in the event of
the failure of Lessee either to effect such insurance as herein called for or to
pay the premiums therefor, or to deliver such policies or certificates thereof
to Lessor at the times required, Lessor shall be entitled, but shall have no
obligation, to effect such insurance and pay the premiums therefor, and Lessee
shall reimburse Lessor for any premium or premiums paid by Lessor for the
coverages required of Lessee under this Article 13 upon written demand therefor,
and Lessee's failure to repay the same within thirty (30) days after Notice of
such failure from Lessor shall constitute an Event of Default within the meaning
of Section 16.1. Each insurer mentioned in this Article 13 shall agree, by
endorsement to the policy or policies issued by it, or by independent instrument
furnished to Lessor, that it will give to Lessor thirty (30) days' written
notice before the policy or policies in question shall be materially altered,
allowed to expire or canceled.

               (b)  All of the policies of insurance referred to in this Article
13 to be maintained by Lessor shall be written in a form, with deductibles and
by insurance companies satisfactory to Lessee. Lessor shall pay all of the
premiums therefor, and deliver such policies or certificates thereof to Lessee
prior to their effective date (and, with respect to any renewal policy, thirty
(30) days prior to the expiration of the existing policy), and in the event of
the failure of Lessor either to effect such insurance as herein called for or to
pay the premiums therefor, or to deliver such policies or certificates thereof
to Lessee at the times required, Lessee shall be entitled, but shall have no
obligation, to effect such insurance and pay the premiums therefor, and Lessor
shall reimburse Lessee for any premium or premiums paid by Lessee for the
coverages required under this Section upon written demand therefor. Each insurer
mentioned in this Article 13 shall agree, by endorsement to the policy or
policies issued by it, or by independent instrument furnished to Lessee, that it
will give to Lessee thirty (30) days' written notice before the policy or
policies in question shall be materially altered, allowed to expire or canceled.

       13.5.   Increase in Limits. If either Lessor or Lessee at any time deems
               ------------------
the limits of the personal injury or property damage under the comprehensive
public liability insurance then carried to be either excessive or insufficient,
Lessor and Lessee shall endeavor in good faith to agree on

                                      41
<PAGE>

the proper and reasonable limits for such insurance to be carried and such
insurance shall thereafter be carried with the limits thus agreed on until
further change pursuant to the provisions of this Article 13.

       13.6.   Blanket Policy. Notwithstanding anything to the contrary
               --------------
contained in this Article 13. Lessee or Lessor may bring the insurance provided
for herein within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Lessee (or Manager) or Lessor; provided,
however, that the coverage afforded to Lessor and Lessee will not be reduced or
diminished or otherwise be different from that which would exist under a
separate policy meeting all other requirements of this Lease by reason of the
use of such blanket policy of insurance, and provided further that the
requirements of this Article 13 are otherwise satisfied.

       13.7.   No Separate Insurance. Lessee shall not, on Lessee's own
               ---------------------
initiative or pursuant to the request or requirement of any third party, take
out separate insurance concurrent in form or contributing in the event of loss
with that required in this Article to be furnished, or increase the amount of
any then existing insurance by securing an additional policy or additional
policies, unless all parties having an insurable interest in the subject matter
of the insurance, including in all cases Lessor, are included therein as
additional insured, and the loss is payable under such additional separate
insurance in the same manner as losses are payable under this Lease. Lessee
shall immediately notify Lessor of any such separate insurance that Lessee has
obtained or of the increase of any of the amounts of the then existing
insurance.

       13.8.   Reports On Insurance Claims. Lessee shall promptly investigate
               ----------------------------
and make a complete and timely written report to the appropriate insurance
company as to all accidents, claims for damage relating to the ownership,
operation, and maintenance of the Hotel, any damage or destruction to the Hotel
and the estimated cost of repair thereof and shall prepare any and all reports
required by any insurance company in connection therewith. All such reports
shall be timely filed with the insurance company as required under the terms of
the insurance policy involved, and a final copy of such report shall be
furnished to Lessor. Lessee shall be authorized to adjust, settle, or compromise
any insurance loss, or to execute proofs of such loss, in the aggregate amount
of $25,000 or less, with respect to any single casualty or other event.


                                  ARTICLE 14
                                  ----------
                  CASUALTY INSURANCE PROCEEDS; RECONSTRUCTION

       14.1.   Insurance Proceeds. Subject to the provisions of Section 14.4,
               ------------------
all proceeds payable by reason of any loss or damage to the Leased Property, or
any portion thereof, insured under any policy of insurance required by Article
13 of this Lease, shall be paid to Lessor and held in trust by Lessor in an
interest-bearing account, shall be made available, if applicable, for
reconstruction or repair, as the case may be, of any damage to or destruction of
the Leased Property, or any portion thereof, and, if applicable, shall be paid
out by Lessor from time to time for the reasonable costs of such reconstruction
or repair upon satisfaction of reasonable terms and conditions specified by
Lessor. Any excess proceeds of insurance (and accrued interest) remaining after
the completion of the restoration or reconstruction of the Leased Property, as
hereinafter set forth, shall be paid to Lessee. If neither Lessor nor Lessee is
required or elects to repair and restore, and the Lease is

                                      42
<PAGE>

terminated without purchase by Lessee as described in Section 14.2, all such
insurance proceeds shall be retained by Lessor. All salvage resulting from any
risk covered by insurance shall belong to Lessor.

       14.2.   Reconstruction in the Event of Damage or Destruction Covered by
               ---------------------------------------------------------------
Insurance.
---------

               (a) Except as provided in Section 14.6, if during the Term the
Leased Property is totally or partially destroyed by a risk covered by the
insurance described in Article 13 and the Hotel thereby is rendered Unsuitable
for its Primary Intended Use, Lessee shall, at Lessee's option, either (1)
restore the Hotel to substantially the same condition as existed immediately
before the damage or destruction and otherwise in accordance with the terms of
the Lease, or (2) offer to acquire the Leased Property from Lessor for a
purchase price equal to the Rejectable Offer Price of the Leased Property. If
Lessee restores the Hotel, the insurance proceeds shall be paid out by Lessor
from time to time for the reasonable costs of such restoration upon satisfaction
of reasonable terms and conditions, and any excess proceeds remaining after such
restoration shall be paid to Lessee. If Lessee acquires the Leased Property,
Lessee shall receive the insurance proceeds. If Lessor does not accept Lessee's
offer so to purchase the Leased Property within ninety (90) days, Lessee may
withdraw its offer to purchase the Leased Property and, if so withdrawn, Lessee
may terminate the Lease with respect to the Leased Property without further
liability hereunder and Lessor shall be entitled to retain all insurance
proceeds.

               (b) Except as provided in Section 14.6, if during the Term the
Leased Property is partially destroyed by a risk covered by the insurance
described in Article 13, but the Hotel is not thereby rendered Unsuitable for
its Primary Intended Use, Lessee shall restore the Hotel to substantially the
same condition as existed immediately before the damage or destruction and
otherwise in accordance with the terms of the Lease. Such damage or destruction
shall not terminate this Lease; provided, however, that if Lessee cannot within
a reasonable time obtain all necessary government approvals, including building
permits, licenses and conditional use permits, after diligent efforts to do so,
to perform all required repair and restoration work and to operate the Hotel for
its Primary Intended Use in substantially the same manner as that existing
immediately prior to such damage or destruction and otherwise in accordance with
the terms of the Lease, Lessee may offer to purchase the Leased Property for a
purchase price equal to the Rejectable Offer Price of the Leased Property,
determined without regard to such damage or destruction if insurance proceeds
are available to restore the Hotel. If Lessee makes such offer and Lessor does
not accept the same, Lessee shall withdraw such offer, in which event this Lease
shall remain in full force and effect and Lessee shall immediately proceed to
restore the Hotel to substantially the same condition as existed immediately
before such damage or destruction and otherwise in accordance with the terms of
the Lease. If Lessee restores the Hotel, the insurance proceeds shall be paid
out by Lessor from time to time for the reasonable costs of such restoration
upon satisfaction of reasonable terms and conditions specified by Lessor, and
any excess proceeds remaining after such restoration shall be paid to Lessee.

               (c) If the cost of the repair or restoration exceeds the amount
of proceeds received by Lessor from the insurance it maintains as required under
Article 13, Lessee shall be obligated to contribute any excess amounts needed to
restore the Hotel. Such difference shall be paid by Lessee to Lessor promptly
after Lessee receives Lessor's written invoice therefor, to be

                                      43
<PAGE>

held in trust in an interest-bearing account, together with any other insurance
proceeds, for application to the cost of repair and restoration.

               (d) If Lessor accepts Lessee's offer to purchase the Leased
Property under this Article, this Lease shall terminate as to the Leased
Property upon payment of the purchase price, and Lessor shall remit to Lessee
all insurance proceeds pertaining to the Leased Property being held in trust by
Lessor.

       14.3.   Reconstruction in the Event of Damage or Destruction Not Covered
               ----------------------------------------------------------------
by Insurance. Except as provided in Section 14.6, if during the Term the Hotel
------------
is totally or materially destroyed by a risk not covered by the insurance
described in Article 13, whether or not such damage or destruction renders the
Hotel Unsuitable for its Primary Intended Use, Lessee at its option shall
either, (a) at Lessee's sole cost and expense, restore the Hotel to
substantially the same condition it was in immediately before such damage or
destruction and such damage or destruction shall not terminate this Lease, or
(b) offer to purchase the Leased Property for a purchase price equal to the
Rejectable Offer Price of the Leased Property without regard to such damage or
destruction. If such damage or destruction is not material, Lessee shall restore
the Hotel to substantially the same condition as existed immediately before the
damage or destruction and otherwise in accordance with the terms of the Lease.
If Lessor does not accept Lessee's offer so to purchase the Leased Property
within ninety (90) days, Lessee may withdraw its offer to purchase the Leased
Property and, if so withdrawn, Lessee may terminate the Lease with respect to
the Leased Property without further liability hereunder.

       14.4.   Lessee's Property. All insurance proceeds payable by reason of
               -----------------
any loss of or damage to any of Lessee's Personal Property shall be paid to
Lessee; provided, however, no such payments shall diminish or reduce the
insurance payments otherwise payable to or for the benefit of Lessor hereunder.

       14.5.   Abatement of Rent. Any damage or destruction due to casualty
               -----------------
notwithstanding, this Lease shall remain in full force and effect and Lessee's
obligation to make rental payments and to pay all other charges required by this
Lease shall remain unabated during the first three (3) months of any period
required for the applicable repair and restoration. Thereafter, Base Rent shall
be equitably abated.

       14.6.   Damage Near End of Term. Notwithstanding any provisions of
               -----------------------
Section 14.2 or 14.3 appearing to the contrary, if damage to or destruction of
the Hotel rendering it unsuitable for its Primary Intended Use occurs during the
last twenty-four (24) months of the Term, then Lessor or Lessee shall have the
right to terminate this Lease by giving Notice, respectively, to Lessee or
Lessor within thirty (30) days after the date of damage or destruction,
whereupon all accrued Rent shall be paid immediately, and this Lease shall
automatically terminate five (5) days after the date of such Notice.

       14.7.   Waiver. Lessee hereby waives any statutory rights of termination
               ------
that may arise by reason of any damage or destruction of the Hotel that Lessor
is obligated to restore or may restore under any of the provisions of this
Lease.

                                      44
<PAGE>

                                  ARTICLE 15
                                  ----------
                        CONDEMNATION; AWARD ALLOCATION

       15.1.   Definitions.
               ------------

               (a) "Award" means all compensation, sums or anything of value
awarded, paid or received on a total or partial Condemnation.

               (b) "Condemnation" means a Taking resulting from (1) the exercise
of any governmental power, whether by legal proceedings or otherwise, by a
Condemnor, and (2) a voluntary sale or transfer by Lessor to any Condemnor,
either under threat of condemnation or while legal proceedings for condemnation
are pending.

               (c) "Condemnor" means any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation.

               (d) "Date of Taking" means the date the Condemnor has the right
to possession of the property being condemned.

       15.2.   Parties' Rights and Obligations. If during the Term there is any
               -------------------------------
Condemnation of all or any part of the Leased Property or any interest in this
Lease, the rights and obligations of Lessor and Lessee shall be determined by
this Article 15.

       15.3.   Total Taking  If title to the fee of the whole of the Leased
               -------------
Property is condemned by any Condemnor, this Lease shall cease and terminate as
of the Date of Taking by the Condemnor. If title to the fee of less than the
whole of the Leased Property is so taken or condemned, which nevertheless
renders the Leased Property Unsuitable or Uneconomic for its Primary Intended
Use, Lessee and Lessor shall each have the option, by Notice to the other, at
any time prior to the Date of Taking, to terminate this Lease as of the Date of
Taking. Upon such date, if such Notice has been given, this Lease shall
thereupon cease and terminate. All Base Rent, Percentage Rent and Additional
Charges paid or payable by Lessee hereunder shall be apportioned as of the Date
of Taking, and Lessee shall promptly pay Lessor such amounts.

       15.4.   Allocation of Award. The total Award made with respect to the
               -------------------
Leased Property or for loss of rent, or for Lessor's loss of business beyond the
Term, shall be solely the property of and payable to Lessor. Any Award made for
loss of Lessee's business during the remaining Term, if any, for the taking of
Lessee's Personal Property, or for removal and relocation expenses of Lessee in
any such proceedings shall be the sole property of and payable to Lessee. In any
Condemnation proceedings Lessor and Lessee shall each seek its Award in
conformity herewith, at its respective expense; provided, however, Lessee shall
not initiate, prosecute or acquiesce in any proceedings that may result in a
diminution of any Award payable to Lessor.

       15.5.   Partial Taking. If title to less than the whole of the Leased
Property is condemned, and the Leased Property is not Unsuitable for its Primary
Intended Use, and not Uneconomic for its Primary Intended Use, or if Lessee or
Lessor is entitled but neither elects to terminate this Lease as provided in
Section 15.3, Lessee at its cost shall with all reasonable dispatch restore the
untaken

                                      45
<PAGE>

portion of any Leased Improvements so that such Leased Improvements constitute a
complete architectural unit of the same general character and condition (as
nearly as may be possible under the circumstances) as the Leased Improvements
existing immediately prior to the Condemnation. Lessor shall contribute to the
cost of restoration that part of its Award specifically allocated to such
restoration, if any, together with severance and other damages awarded for the
taken Leased Improvements; provided, however, that the amount of such
contribution shall not exceed such cost. In the event of such a partial Taking,
this Lease shall not terminate, but the Base Rent shall be abated in the manner
and to the extent that is fair, just and equitable to both Lessee and Lessor,
taking into consideration, among other relevant factors, the number of usable
rooms, the amount of square footage, or the revenues affected by such partial
Taking. If Lessor and Lessee are unable to agree upon the amount of such
abatement within thirty (30) days after such partial Taking, the matter may be
submitted by either party to a court of competent jurisdiction for resolution.

       15.6.   Temporary Taking. If the whole or any part of the Leased Property
(other than the fee) or of Lessee's interest under this Lease is condemned by
any Condemnor for its temporary use or occupancy (which shall mean a period not
to exceed two years), this Lease shall not terminate by reason thereof, and
Lessee shall continue to pay, in the manner and at the terms herein specified,
the full amounts of Base Rent and Additional Charges. In addition, Lessee shall
pay Percentage Rent at a rate equal to the average Percentage Rent during the
last three (3) preceding Fiscal Years (or if three (3) Fiscal Years shall not
have elapsed, the average during the preceding Fiscal Years). Except only to the
extent that Lessee may be prevented from so doing pursuant to the terms of the
order of the Condemnor, Lessee shall continue to perform and observe all of the
other terms, covenants, conditions and obligations hereof on the part of Lessee
to be performed and observed, as though such Condemnation had not occurred. In
the event of any Condemnation as in this Section 15.6 described, the entire
amount of any Award made for such Condemnation allocable to the Term of this
Lease, whether paid by way of damages, rent or otherwise, shall be paid to
Lessee. Lessee covenants that upon the termination of any such period of
temporary use or occupancy it will, at its sole cost and expense (subject to
Lessor's contribution as set forth below), restore the Leased Property as nearly
as may be reasonably possible to the condition in which the same was immediately
prior to such Condemnation, unless such period of temporary use or occupancy
extends beyond the expiration of the Term, in which case Lessee shall not be
required to make such restoration. If restoration is required hereunder, Lessor
shall contribute to the cost of such restoration that portion of its entire
Award that is specifically allocated to such restoration in the judgment or
order of the court, if any, and Lessee shall fund the balance of such costs in a
manner reasonably satisfactory to Lessor.


                                  ARTICLE 16
                                  ----------
                     DEFAULT BY LESSEE; LESSOR'S REMEDIES

       16.1.   Events of Default. If any one or more of the following events
               -----------------
(individually, an "Event of Default") occurs:

               (a) if an Event of Default occurs under any other lease between
Lessor or any Affiliate of Lessor and Lessee or any Affiliate of Lessee; or

                                      46
<PAGE>

               (b) if Lessee fails to make payment of the Base Rent within ten
(10) days after the same becomes due and payable; or

               (c) if Lessee fails to make payment of Percentage Rent when the
same becomes due and payable and such condition continues for a period of thirty
(30) days after the end of the applicable quarter; or

               (d) if Lessee fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured by Lessee
within a period of thirty (30) days after receipt by Lessee of Notice thereof
from Lessor, unless such failure cannot with due diligence be cured within a
period of thirty (30) days, in which case it shall not be deemed an Event of
Default if Lessee proceeds promptly and with due diligence to cure the failure
and diligently completes the curing thereof provided, however, in no event shall
such cure period extend beyond ninety (90) days after such Notice; or

               (e) if Lessee shall file a petition in bankruptcy or
reorganization for an arrangement pursuant to any federal or state bankruptcy
law or any similar federal or state law, or shall be adjudicated a bankrupt or
shall make an assignment for the benefit of creditors or shall admit in writing
its inability to pay its debts generally as they become due, or if a petition or
answer proposing the adjudication of Lessee as a bankrupt or its reorganization
pursuant to any federal or state bankruptcy law or any similar federal or state
law shall be filed in any court and Lessee shall be adjudicated a bankrupt and
such adjudication shall not be vacated or set aside or stayed within sixty (60)
days after the entry of an order in respect thereof, or if a receiver of Lessee
or of the whole or substantially all of the assets of Lessee shall be appointed
in any proceeding brought by Lessee or if any such receiver, trustee or
liquidator shall be appointed in any proceeding brought against Lessee and shall
not be vacated or set aside or stayed within sixty (60) days after such
appointment; or

               (f) if Lessee is liquidated or dissolved, or begins proceedings
toward such liquidation or dissolution, or, in any manner, permits the sale or
divestiture of substantially all of its assets; or

               (g) if, except as expressly permitted herein, the estate or
interest of Lessee in the Leased Property or any part thereof is voluntarily or
involuntarily transferred, assigned, conveyed, levied upon or attached in any
proceeding (unless Lessee is contesting such lien or attachment in good faith in
accordance with Section 12.2 hereof) or there is a Change of Control of Lessee;
or

               (h) if, except as a result of damage, destruction or a partial or
complete Condemnation as contemplated by this Lease, Lessee voluntarily ceases
operations on the Leased Property for a period in excess of thirty (30) days; or

               (i) if an event of default has been declared by the franchisor
under the Franchise Agreement with respect to the Hotel as a result of any
action or failure to act by Lessee or any Person with whom Lessee contracts for
management services at the Hotel, and such default is not cured by the earlier
of (A) ten (10) days following notice from Lessor or (B) such earlier date as is
required for Lessee to avoid termination of the Franchise Agreement by the
franchisor;

                                      47
<PAGE>

then, and in any such event, Lessor may exercise one or more remedies available
to it herein or at law or in equity, including but not limited to its right to
terminate this Lease by giving Lessee not less than ten (10) days' Notice of
such termination.

               If litigation is commenced with respect to any alleged default
under this Lease, the prevailing party in such litigation shall receive, in
addition to its damages incurred, such sum as the court shall determine as its
reasonable attorneys' fees, and all costs and expenses incurred in connection
therewith.

               No Event of Default (other than a failure to make a payment of
money) shall be deemed to exist under clause (d) during any time the curing
thereof is prevented by an Unavoidable Delay, provided that upon the cessation
of such Unavoidable Delay, Lessee remedies such default or Event of Default
without further delay.

       16.2.   Surrender. If an Event of Default occurs (and the event giving
               ---------
rise to such Event of Default has not been cured within the curative period
relating thereto as set forth in Section 16.1) and is continuing, whether or not
this Lease has been terminated pursuant to Section 16.1, Lessee shall, if
requested by Lessor so to do, immediately surrender to Lessor the Leased
Property including, without limitation, any and all books, records, files,
licenses, permits and keys relating thereto, and quit the same and Lessor may
enter upon and repossess the Leased Property by summary proceedings, ejectment
or otherwise, and may remove Lessee and all other Persons and any and all
personal property from the Leased Property, subject to rights of any hotel
guests and to any requirement of law. Lessee hereby waives any and all
requirements of applicable laws for service of notice to re-enter the Leased
Property. Lessor shall be under no obligation to, but may if it so chooses,
relet the Leased Property or otherwise mitigate Lessor's damages.

       16.3.   Damages. Neither (a) the termination of this Lease, (b) the
               -------
repossession of the Leased Property, (c) the failure of Lessor to relet the
Leased Property, nor (d) the reletting of all or any portion thereof, shall
relieve Lessee of its liability and obligations hereunder, all of which shall
survive any such termination, repossession or reletting. In the event of any
such termination, Lessee shall forthwith pay to Lessor all Rent due and payable
with respect to the Leased Property to and including the date of such
termination.

               Lessee shall forthwith pay to Lessor, at Lessor's option, as and
for liquidated and agreed current damages for Lessee's default, either:

                    (i) Without termination of Lessee's right to possession of
               the Leased Property, each installment of Rent (including
               Percentage Rent as determined below) and other sums payable by
               Lessee to Lessor under the Lease as the same becomes due and
               payable, which Rent and other sums shall bear interest at the
               Overdue Rate, and Lessor may enforce, by action or otherwise, any
               other term or covenant of this Lease; or

                                      48
<PAGE>

               (ii)  the sum of:

                    (A) the unpaid Rent which had been earned at the time of
          termination, repossession or reletting, and

                    (B) the worth at the time of termination, repossession or
          reletting of the amount by which the unpaid Rent for the balance of
          the Term after the time of termination, repossession or reletting,
          exceeds the amount of such rental loss that Lessee proves could be
          reasonably avoided and as reduced for rentals received after the time
          of termination, repossession or reletting, if and to the extent
          required by applicable law, and

                    (C) any other amount necessary to compensate Lessor for all
          the detriment proximately caused by Lessee's failure to perform its
          obligations under this Lease or which in the ordinary course of
          things, would be likely to result therefrom.

          The worth at the time of termination, repossession or reletting of the
amount referred to in subparagraph (B) is computed by discounting such amount at
the discount rate of the Federal Reserve Bank of New York at the time of award
plus one percent (1%).  Percentage Rent for the purposes of this Section 16.3
shall be a sum equal to (i) the average of the annual amounts of the Percentage
Rent for the three (3) Fiscal Years immediately preceding the Fiscal Year in
which the termination, re-entry or repossession takes place, or (ii) if three
(3) Fiscal Years shall not have elapsed, the average of the Percentage Rent
during the preceding Fiscal Years during which the Lease was in effect, or (iii)
if one Fiscal Year has not elapsed, the amount derived by annualizing the
Percentage Rent from the effective date of this Lease.

       16.4.   Waiver. If this Lease is terminated pursuant to Section 16.1,
               ------
Lessee waives, to the extent permitted by applicable law, (a) any right to a
trial by jury in the event of summary proceedings to enforce the remedies set
forth in this Article 16, and (b) the benefit of any laws now or hereafter in
force exempting property from liability for rent or for debt and Lessor waives
any right to "pierce the corporate veil" of Lessee other than to the extent
funds shall have been fraudulently paid by Lessee to any Affiliate of Lessee
following a default resulting in an Event of Default.

       16.5.   Application of Funds. Any payments received by Lessor under any
               --------------------
of the provisions of this Lease during the existence or continuance of any Event
of Default shall be applied to Lessee's obligations in the order that Lessor may
determine or as may be prescribed by the laws of the State.

       16.6.   Lessor's Right to Cure Lessee's Default. If Lessee fails to make
               --------------------------------------
any payment or to perform any act required to be made or performed under this
Lease, including, without limitation, Lessee's failure to comply with the terms
of any Franchise Agreement, and fails to cure the same within the relevant time
periods provided in Section 16.1, Lessor, without waiving or releasing any
obligation of Lessee, and without waiving or releasing any obligation or
default, may (but shall be

                                      49
<PAGE>

under no obligation to) at any time thereafter make such payment or perform such
act for the account and at the expense of Lessee, and may, to the extent
permitted by law, enter upon the Leased Property for such purpose and, subject
to Section 16.4, take all such action thereon as, in Lessor's opinion, may be
necessary or appropriate therefor. No such entry shall be deemed an eviction of
Lessee. All sums so paid by Lessor and all costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses, in each case to the
extent permitted by law) so incurred, together with a late charge thereon (to
the extent permitted by law) at the Overdue Rate from the date on which such
sums or expenses are paid or incurred by Lessors, shall be paid by Lessee to
Lessor on demand. The obligations of Lessee and rights of Lessor contained in
this Article shall survive the expiration or earlier termination of this Lease.


                                  ARTICLE 17
                                  ----------
                     DEFAULT BY LESSOR; LESSEE'S REMEDIES

       17.1.   Breach by Lessor. It shall be a breach of this Lease if Lessor
               ----------------
fails to observe or perform any term, covenant or condition of this Lease on its
part to be performed and such failure continues for a period of thirty (30) days
after Notice thereof from Lessee, unless such failure cannot with due diligence
be cured within a period of thirty (30) days, in which case such failure shall
not be deemed to continue if Lessor, within such thirty (30) day period,
proceeds promptly and with due diligence to cure the failure and diligently
completes the curing thereof; provided, however, that such default shall be
cured by Lessor in any event prior to the date on which the default becomes an
event of default under the terms of the Franchise Agreement for the Hotel. The
time within which Lessor shall be obligated to cure any such failure also shall
be subject to extension of time due to the occurrence of any Unavoidable Delay.
If Lessor fails to cure any such breach within the grace period described above,
Lessee, without waiving or releasing any obligations hereunder, and in addition
to all other remedies available to Lessee at law or in equity, may purchase the
Leased Property from Lessor for a purchase price equal to the then Fair Market
Value. If Lessee elects to purchase the Leased Property it shall deliver a
Notice thereof to Lessor specifying a settlement date to occur not less than
ninety (90) days subsequent to the date of such Notice on which it shall
purchase the Leased Property, and the same shall be thereupon conveyed in
accordance with the provisions of Section 17.3; provided, however, that Lessor
shall pay the cost of Lessee's title insurance and all closing costs associated
with such purchase by Lessee following default by Lessor.

       17.2.  Lessee's Right to Cure.
       -----  -----------------------

    Subject to the provisions of Section 17.1, if Lessor breaches any covenant
to be performed by it under this Lease, Lessee, after Notice to and demand upon
Lessor, without waiving or releasing any obligation hereunder, and in addition
to all other remedies available to Lessee, may (but shall be under no obligation
at any time thereafter to) make such payment or perform such act for the account
and at the expense of Lessor.  All sums so paid by Lessee and all costs and
expenses (including, without limitation, reasonable attorneys' fees) so
incurred, together with interest thereon at the Overdue Rate from the date on
which such sums or expenses are paid or incurred by Lessee, shall be paid by
Lessor to Lessee on demand or, following entry of a final, nonappealable
judgment against Lessor for such sums, may be offset by Lessee against the Base
Rent and/or Percentage Rent payments next accruing or coming due.  The rights of

                                      50
<PAGE>

Lessee hereunder to cure and to secure payment from Lessor in accordance with
this Section 17.2 shall survive the termination of this Lease with respect to
the Leased Property.

     17.3.  Provisions Relating to Purchase of the Leased Property by Lessee.
            -----------------------------------------------------------------
If Lessee purchases the Leased Property from Lessor pursuant to any of the terms
of this Lease, Lessor shall, upon receipt from Lessee of the applicable purchase
price, together with full payment of any unpaid Rent due and payable with
respect to any period ending on or before the date of the purchase, deliver to
Lessee an appropriate limited or special warranty deed or other conveyance
conveying the entire interest of Lessor in and to the Leased Property to Lessee
free and clear of all encumbrances other than (a) those that Lessee has agreed
hereunder to pay or discharge, (b) those mortgage liens, if any, that Lessee has
agreed in writing to accept and to take title subject to, (c) those liens and
encumbrances subject to which the Leased Property was conveyed to Lessor, to the
extent not released in connection with the transactions contemplated by this
Lease, (d) encumbrances, easements, licenses or rights of way required to be
imposed on the Leased Property under Section 7.3, and (e) any other encumbrances
permitted to be imposed on the Leased Property under the provisions of Article
22 that are assumable at no cost to Lessee or to which Lessee may take subject
without cost to Lessee. The difference between the applicable purchase price and
the total of the encumbrances assumed or taken subject to shall be paid in cash
to Lessor or as Lessor may direct, in federal or other immediately available
funds, except as otherwise mutually agreed by Lessor and Lessee. All expenses of
such conveyance, including, without limitation, the cost of title examination or
title insurance, if desired by Lessee, Lessee's attorneys' fees incurred in
connection with such conveyance and release, and one-half of any transfer taxes
and recording fees, shall be paid by Lessee. Lessor shall pay one-half of any
transfer taxes and recording fees and its attorney's fees.


                                  ARTICLE 18
                                  ----------
                                INDEMNIFICATION

     18.1.  Indemnification.
            ----------------

            (a)     Notwithstanding the existence of any insurance, and without
regard to the policy limits of any such insurance or self-insurance, but subject
to Section 13.3 and Section 8.3, Lessee will protect, indemnify, hold harmless
and defend Lessor from and against all liabilities, losses, obligations, claims,
damages, penalties, causes of action, costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses), to the extent permitted by
law, imposed upon or incurred by or asserted against Lessor Indemnified Parties
by reason of: (a) any accident, injury to or death of persons or loss of or
damage to property occurring on or about the Leased Property or adjoining
sidewalks, including without limitation any claims under liquor liability, "dram
shop" or similar laws, (b) any use, misuse, non-use, condition, management,
maintenance or repair by Lessee or any of its agents, employees or invitees of
the Leased Property or Lessee's Personal Property during the Term or any
litigation, proceeding or claim by governmental entities or other third parties
to which a Lessor Indemnified Party is made a party or participant related to
such use, misuse, non-use, condition, management, maintenance, or repair thereof
by Lessee or any of its agents, employees or invitees, including any failure of
lessee or any of its agents, employees or invitees to perform any obligations
under this Lease or imposed by

                                      51
<PAGE>

applicable law (other than arising out of Condemnation proceedings), (c) any
Impositions that are the obligations of Lessee pursuant to the applicable
provisions of this Lease, (d) any failure on the part of Lessee to perform or
comply with any of the terms of this Lease, and (e) the non-performance of any
of the terms and provisions of any and all existing and future subleases of the
Leased Property to be performed by the landlord thereunder.

            (b)     Notwithstanding the existence of any insurance, and without
regard to the policy limits of any such insurance or self-insurance, but subject
to Section 13.3 and Section 8.3, Lessor shall indemnify, save harmless and
defend Lessee Indemnified Parties from and against all liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses imposed upon or
incurred by or asserted against Lessee Indemnified Parties as a result of (a)
the gross negligence or willful misconduct of Lessor arising in connection with
this Lease or (b) any failure on the part of Lessor to perform or comply with
any of the terms of this Lease. Any amounts that become payable by an
Indemnifying Party under this Section shall be paid within ten (10) days after
liability therefor on the part of the Indemnifying Party is determined by
litigation or otherwise, and if not timely paid, shall bear a late charge (to
the extent permitted by law) at the Overdue Rate from the date of such
determination to the date of payment. An Indemnifying Party, at its expense,
shall contest, resist and defend any such claim, action or proceeding asserted
or instituted against the Indemnified Party. The Indemnified Party, at its
expense, shall be entitled to participate in any such claim, action, or
proceeding, and the Indemnifying Party may not compromise or otherwise dispose
of the same without the consent of the Indemnified Party, which may not be
unreasonably withheld or delayed. Nothing herein shall be construed as
indemnifying a Lessor Indemnified Party against its own (or Lessor's) grossly
negligent acts or omissions or willful misconduct.

            (c)     Lessee's or Lessor's liability for a breach of the
provisions of this Article shall survive any termination of this Lease .


                                  ARTICLE 19
                                  ----------
                      REIT REQUIREMENTS AND RESTRICTIONS

     19.1.  Personal Property Limitation. Anything contained in this Lease to
              -----------------------------
the contrary notwithstanding, the average of the adjusted tax bases of the items
of personal property that are leased to Lessee under this Lease at the beginning
and at the end of any Fiscal Year shall not exceed fifteen percent (15%) of the
average of the aggregate adjusted tax bases of the Leased Property at the
beginning and at the end of such Fiscal Year. This Section 19.1 is intended to
ensure that the Rent qualifies as "rents from real property," within the meaning
of Section 856(d) of the Code, or any similar or successor provisions thereto,
and shall be interpreted in a manner consistent with such intent.

       19.2.  Sublease Rent Limitation. Anything contained in this Lease to the
              -------------------------
contrary notwithstanding, Lessee shall not sublet the Leased Property on any
basis such that the rental to be paid by the sublessee thereunder would be
based, in whole or in part, on either (a) the income or profits derived by the
business activities of the sublessee, or (b) any other formula such that any

                                      52
<PAGE>

portion of the Rent would fail to qualify as "rents from real property" within
the meaning of Section 856(d) of the Code, or any similar or successor provision
thereto.

     19.3.  Sublease Tenant Limitation. Anything contained in this Lease to the
            ---------------------------
contrary notwithstanding, Lessee shall not sublease the Leased Property to any
Person in which Lessor owns, directly or indirectly, a ten percent (10%) or more
interest, within the meaning of Section 856(d)(2)(B) of the Code, or any similar
or successor provisions thereto.

     19.4.  Lessee Ownership Limitations.
            -----------------------------

            (a)     Anything contained in this Lease to the contrary
notwithstanding, neither Lessee nor an Affiliate of Lessee shall acquire,
directly or indirectly, a ten percent (10%) or more interest in Lessor within
the meaning of Section 856(d)(2)(B) of the Code, or any similar or successor
provision thereto.

            (b)     Lessee shall not own, operate, manage or have any interest
in any hotel or motel property in which Lessor or an Affiliate of Lessor does
not have an interest, pursuant to this Lease or another lease, agreement or
arrangement with Lessor or an Affiliate of Lessor. Lessor agrees to notify
Lessee promptly of the location of any hotel or motel property in which Lessor
or an Affiliate of Lessor has an interest.

     19.5.  Lessee Officer and Employee Limitation. If a Person serves as both
            ---------------------------------------
(a) a director of Lessee (or any Person who furnishes or renders services to the
tenants of the Leased Property, or manages or operates the Leased Property) and
(b) an officer (or employee) of the Lessor that Person shall not receive any
compensation for serving as a director of Lessee (or any Person who furnishes or
renders services to the tenants of the Leased Property, or manages or operates
the Leased Property). Furthermore, if a Person serves as both (a) a director of
the Lessor and (b) an officer (or employee) of Lessee (or any Person who
furnishes or renders services to the tenants of the Leased Property, or manages
or operates the Leased Property), that Person shall not receive any compensation
for serving as a director of the Lessor. No Person, other than Glade M. Knight,
shall serve as an officer (or employee) of both Lessor and Lessee.

     19.6.  Payments to Affiliates of Lessee. During the Term, Lessee shall not
            ---------------------------------
pay, or become obligated to pay, any fees to any Affiliate of Lessee in
connection with the Hotel, other than fees that are subordinated to the payments
that are required to be made to Lessor pursuant to this Lease.


                                  ARTICLE 20
                                  ----------
                           SUBLETTING AND ASSIGNMENT

     20.1.  Subletting and Assignment. Subject to the provisions of Article 19
            --------------------------
and Section 20.2 and any other express conditions or limitations set forth
herein, Lessee may, but only with the consent of Lessor (which shall not be
unreasonably withheld or delayed), (a) assign this Lease or sublet all or any
part of the Leased Property to an Affiliate of Lessee, or (b) sublet any retail
or restaurant portion of the Leased Improvements in the normal course of the
Primary Intended Use; provided that any subletting to any party other than an
Affiliate of Lessee shall not individually as

                                      53
<PAGE>

to any one such subletting, or in the aggregate, materially diminish the actual
or potential Percentage Rent payable under this Lease. In the case of a
subletting, the sublessee shall comply with the provisions of Section 20.2, and
in the case of an assignment, the assignee shall assume in writing and agree to
keep and perform all of the terms of this Lease on the part of Lessee to be kept
and performed and shall be, and become, jointly and severally liable with Lessee
for the performance thereof. Notwithstanding the above, Lessee may assign the
Lease to an Affiliate without the consent of Lessor; provided that any such
assignee assumes in writing and agrees to keep and perform all of the terms of
the Lease on the part of Lessee to be kept and performed and shall be and become
jointly and severally liable with Lessee for the performance thereof. In case of
either an assignment or subletting made during the Term, Lessee shall remain
primarily liable, as principal rather than as surety, for the prompt payment of
the Rent and for the performance and observance of all of the covenants and
conditions to be performed by Lessee hereunder. An original counterpart of each
such sublease and assignment and assumption, duly executed by Lessee and such
sublessee or assignee, as the case may be, in form and substance satisfactory to
Lessor, shall be delivered promptly to Lessor.

     20.2.  Attornment. Lessee shall insert in each sublease permitted under
            -----------
Section 20.1 provisions to the effect that (a) such sublease is subject and
subordinate to all of the terms and provisions of this Lease and to the rights
of Lessor hereunder, (b) if this Lease terminates before the expiration of such
sublease, the sublessee thereunder will, at Lessor's option, attorn to Lessor
and waive any right the sublessee may have to terminate the sublease or to
surrender possession thereunder as a result of the termination of this Lease,
and (c) if the sublessee receives a Notice from Lessor or Lessor's assignees, if
any, stating that an uncured Event of Default exists under this Lease, the
sublessee shall thereafter be obligated to pay all rentals accruing under said
sublease directly to the party giving such Notice, or as such party may direct.
All rentals received from the sublessee by Lessor or Lessor's assignees, if any,
as the case may be, shall be credited against the amounts owing by Lessee under
this Lease.

     20.3.  Conveyance by Lessor. Lessor may assign this Lease to any purchaser
            ---------------------
of the Leased Property. If Lessor or any successor owner of the Leased Property
conveys the Leased Property in accordance with the terms hereof other than as
security for a debt, and the grantee or transferee of the Leased Property
expressly assumes all obligations of Lessor hereunder arising or accruing from
and after the date of such conveyance or transfer, Lessor or such successor
owner, as the case may be, shall thereupon be released from all future
liabilities and obligations of Lessor under this Lease arising or accruing from
and after the date of such conveyance or other transfer as to the Leased
Property and all such future liabilities and obligations shall thereupon be
binding upon the new owner.


                                  ARTICLE 21
                                  ----------
                         QUIET ENJOYMENT; RISK OF LOSS

     21.1.  Quiet Enjoyment. So long as Lessee pays all Rent as the same
            ----------------
becomes due and complies with all of the terms of this Lease and performs its
obligations hereunder, in each case within the applicable grace periods, if any,
Lessee shall peaceably and quietly have, hold and enjoy the Leased Property for
the Term hereof, free of any claim or other action by Lessor or anyone

                                      54
<PAGE>

claiming by, through or under Lessor, but subject to all liens and encumbrances
subject to which the Leased Property was conveyed to Lessor, to the extent not
released in connection with the transactions contemplated by this Lease, or
hereafter consented to by Lessee or provided for herein. Notwithstanding the
foregoing, Lessee shall have the right by separate and independent action to
pursue any claim it may have against Lessor as a result of a breach by Lessor of
the covenant of quiet enjoyment contained in this Section.

     21.2.  Risk of Loss. During the Term, the risk of loss or of decrease in
            -------------
the enjoyment and beneficial use of the Leased Property in consequence of the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or otherwise, or in consequence of foreclosures, attachments, levies or
executions (other than those caused by Lessor and those claiming from, through
or under Lessor) is assumed by Lessee, and, in the absence of gross negligence,
willful misconduct or breach of this Lease by Lessor pursuant to Section 17.1,
Lessor shall in no event be answerable or accountable therefor, nor shall any of
the events mentioned in this Section entitle Lessee to any abatement of Rent
except as specifically provided in this Lease.


                                  ARTICLE 22
                                  ----------
                   LESSOR MORTGAGES; SUBORDINATION OF LEASE

     22.1.  Lessor May Grant Liens. Without the consent of Lessee, Lessor may,
            -----------------------
subject to the terms and conditions set forth below in this Section 22.1, from
time to time, directly or indirectly, create or otherwise cause to exist any
lien, encumbrance or title retention agreement ("Encumbrance") upon the Leased
Property, or any portion thereof or interest therein, whether to secure any
borrowing or other means of financing or refinancing. Upon the request of
Lessor, Lessee shall subordinate this Lease to the lien of a new mortgage on the
Leased Property, on the condition that the proposed mortgagee executes a non-
disturbance agreement recognizing this Lease in accordance with the provisions
of Section 22.2, and agreeing, for itself and its successors and assigns, to
comply with the provisions of this Article 22.

     22.2.  Subordination of Lease. This Lease and Lessee's interest hereunder
            -----------------------
shall at all times be subject and subordinate to the lien and security title of
any deeds to secure debt, deeds of trust, mortgages, or other Encumbrances
heretofore or hereafter granted by Lessor or which otherwise encumber or affect
the Leased Property and to any and all advances to be made thereunder and to all
renewals, modifications, consolidations, replacements, substitutions, and
extensions thereof (all of which are herein called the "Mortgage"); provided,
however, that with respect to any Mortgage hereafter granted, such subordination
is conditioned upon delivery to Lessee of a non-disturbance agreement which
provides that Lessee shall not be disturbed in its possession of the Leased
Property hereunder following a foreclosure of such Mortgage (or delivery of a
deed-in-lieu-of-foreclosure) and that the holder of such Mortgage or the
purchaser at a foreclosure sale (or grantee under such deed-in-lieu-of-
foreclosure) shall perform all obligations of Lessor under this Lease. In
confirmation of such subordination, however, Lessee shall, at Lessor's request,
promptly execute, acknowledge and deliver any instrument which may be required
to evidence subordination to any Mortgage and to the holder thereof. In the
event of Lessee's failure to deliver such subordination and if the Mortgage does
not change any term of the Lease, Lessor may, in addition to any other remedies
for breach of covenant hereunder, execute, acknowledge, and deliver the
instrument as
                                      55
<PAGE>

the agent or attorney-in-fact of Lessee, and Lessee hereby irrevocably
constitutes Lessor its attorney-in-fact for such purpose, Lessee acknowledging
that the appointment is coupled with an interest and is irrevocable.


                                  ARTICLE 23
                                  ----------
        ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS; INSPECTION RIGHTS

     23.1.  Estoppel Certificates; Financial Statements.
            --------------------------------------------

            (a)     At any time and from time to time upon not less than ten
(10) days Notice by Lessor, Lessee will furnish to Lessor an Officer's
Certificate certifying that this Lease is unmodified and in full force and
effect (or that this Lease is in full force and effect as modified and setting
forth the modifications), the date to which the Rent has been paid, whether to
the knowledge of Lessee there is any existing default or Event of Default exists
thereunder by Lessor or Lessee, and such other information as may be reasonably
requested by Lessor. Any such certificate furnished pursuant to this Section may
be relied upon by Lessor, any lender and any prospective purchaser of the Leased
Property.

            (b)     Lessee will furnish the following statements to Lessor:

                    (i)    with reasonable promptness, such information
            respecting the financial condition and affairs of Lessee including
            audited financial statements prepared by the same certified
            independent accounting firm that prepares the returns for Lessor or
            such other accounting firm as may be approved by Lessor, as Lessor
            may request from time to time; and

                    (ii)   the most recent Consolidated Financials of Lessee
            within forty-five (45) days after each quarter of any Fiscal Year
            (or, in the case of the final quarter in any Fiscal Year, the most
            recent audited Consolidated Financials of Lessee within ninety (90)
            days); and

                    (iii)  on or about the 20th day of each month, a detailed
            profit and loss statement for the Leased Property for the preceding
            month, a balance sheet for the Leased Property as of the end of the
            preceding month, and a detailed accounting of revenues for the
            Leased Property for the preceding month, each in form acceptable to
            Lessor.

Lessee will permit the inclusion of such statements in any filings required to
be made by Lessor under the Securities Act of 1933 and the Securities Exchange
Act of 1934.

            (c)     At any time and from time to time upon not less than ten
(10) days Notice by Lessee, Lessor will furnish to Lessee or to any Person
designated by Lessee an estoppel certificate certifying that this Lease is
unmodified and in full force and effect (or that this Lease is in full force and
effect as modified and setting forth the modifications), the date to which Rent
has been paid,

                                      56
<PAGE>

whether to the knowledge of Lessor there is any existing default
or Event of Default on Lessee's part hereunder, and such other information as
may be reasonably requested by Lessee.

            (d)     Lessee shall at all times be Solvent. Furthermore, as of the
date of this Agreement, Lessee agrees to establish and maintain, in a form
satisfactory to Lessor, a funding commitment in an amount equal to $2,000,000
upon which Lessee may draw upon to pay to Lessor Base Rent, Percentage Rent and
Additional Charges. Repayment of the funding commitment shall be subordinated to
all payments of Base Rent, Percentage Rent and additional charges under all
Leases between Lessor and Lessee.

     23.2.  Lessor's Right to Inspect. Lessee shall permit Lessor and its
            --------------------------
authorized representatives as frequently as reasonably requested by Lessor to
inspect the Leased Property and Lessee's accounts and records pertaining thereto
and make copies thereof, during usual business hours upon reasonable advance
Notice, subject only to any business confidentiality requirements reasonably
requested by Lessee.

                                  ARTICLE 24
                                  ----------
                                  APPRAISERS

     24.1.  Appraisers. If it becomes necessary to determine the Fair Market
            -----------
Value or Fair Market Rental of the Leased Property for any purpose of this
Lease, the party required or permitted to give Notice of such required
determination shall include in the Notice the name of a Person selected to act
as appraiser on its behalf. Within ten (10) days after Notice, Lessor (or
Lessee, as the case may be) shall by Notice to Lessee (or Lessor, as the case
may be) appoint a second Person as appraiser on its behalf. The appraisers thus
appointed, each of whom must be a member of the American Institute of Real
Estate Appraisers (or any successor organization thereto) with at least five (5)
years' experience in the State appraising property similar to the Leased
Property, shall, within forty-five (45) days after the date of the Notice
appointing the first appraiser, proceed to appraise the Leased Property to
determine the Fair Market Value or Fair Market Rental thereof as of the relevant
date (giving effect to the impact, if any, of inflation from the date of their
decision to the relevant date); provided, however, that if only one appraiser
shall have been so appointed, then the determination of such appraiser shall be
final and binding upon the parties. To the extent consistent with sound
appraisal practice as then existing at the time of any such appraisal, such
appraisal shall be made on a basis consistent with the basis on which the Leased
Property was appraised for purposes of determining its Fair Market Value at the
time the Leased Property was acquired by Lessor. If two (2) appraisers are
appointed and if the difference between the amounts so determined does not
exceed five percent (5%) of the lesser of such amounts, then the Fair Market
Value or Fair Market Rental shall be an amount equal to fifty percent (50%) of
the sum of the amounts so determined. If the difference between the amounts so
determined exceeds five percent (5%) of the lesser of such amounts, then such
two appraisers shall have twenty (20) days to appoint a third appraiser. If no
such appraiser shall have been appointed within such twenty (20) days or within
ninety (90) days of the original request for a determination of Fair Market
Value or Fair Market Rental, whichever is earlier, either Lessor or Lessee may
apply to any court having jurisdiction to have such appointment made by such
court. Any appraiser appointed by the original appraisers or by such court shall
be instructed to determine the Fair Market Value or Fair Market

                                      57
<PAGE>

Rental within forty-five (45) days after appointment of such appraiser. The
determination of the appraiser which differs most in the terms of dollar amount
from the determinations of the other two appraisers shall be excluded, and fifty
percent (50%) of the sum of the remaining two determinations shall be final and
binding upon Lessor and Lessee as the Fair Market Value or Fair Market Rental of
the Leased Property, as the case may be. This provision for determining by
appraisal shall be specifically enforceable to the extent such remedy is
available under applicable law, and any determination hereunder shall be final
and binding upon the parties except as otherwise provided by applicable law.
Lessor and Lessee shall each pay the fees and expenses of the appraiser
appointed by it and each shall pay one-half of the fees and expenses of the
third appraiser and one-half of all other costs and expenses incurred in
connection with each appraisal.


                                  ARTICLE 25
                                  ----------
                 ARBITRATION AND DISPUTE RESOLUTION PROCEDURES

     25.1.  Arbitration. Except as set forth in Section 25.2, in each case
            ------------
specified in this Lease in which it shall become necessary to resort to
arbitration, such arbitration shall be determined as provided in this Section
25.1. The party desiring such arbitration shall give Notice to that effect to
the other party, and an arbitrator shall be selected by mutual agreement of the
parties, or if they cannot agree within thirty (30) days of such notice, by
appointment made by the American Arbitration Association ("AAA") from among the
members of its panels who are qualified and who have experience in resolving
matters of a nature similar to the matter to be resolved by arbitration.

     25.2.  Alternative Arbitration. In each case specified in this Lease for a
            ------------------------
matter to be submitted to arbitration pursuant to the provisions of this Section
25.2, Lessor and Lessee will agree upon a nationally recognized accounting firm
with a hospitality division of which neither party nor their Affiliates of
Lessor is a significant client to serve as arbitrator of such dispute within
fifteen (15) days after written demand for arbitration is received or sent by
either party. In the event the parties fail to make such designation within such
fifteen (15) day period, Lessor shall be entitled to designate any nationally
recognized accounting firm with a hospitality division of which Lessor or an
Affiliate of Lessor is not a significant client to serve as arbitrator of such
dispute within fifteen (15) days after the parties fail to timely make such
designation. In the event Lessor fails to make such designation within such
fifteen (15) day period, Lessee shall be entitled to designate any nationally
recognized accounting firm with hospitality division of which Lessee or an
Affiliate of Lessee is not a significant client to serve as arbitrator of such
dispute within fifteen (15) days after the parties fail to timely make such
designation. In the event no nationally recognized accounting firm satisfying
such qualifications is available and willing to serve as arbitrator, the
arbitrator shall instead be administered as set forth in Section 25.1.


     25.3.  Arbitration Procedure. In any arbitration commenced pursuant to
            ----------------------
Sections 25.1 or 25.2, a single arbitrator shall be designated and shall resolve
the dispute. The arbitrator's decision shall be binding on all parties, shall
not be subject to further review or appeal except as otherwise allowed by
applicable law and may be filed in and enforced by a court of competent
jurisdiction. Upon the failure of either party (the "non-complying party") to
comply with his decision, the arbitrator shall be empowered, at the request of
the other party, to order such compliance by the non-complying party and to
supervise or arrange for the supervision of the non-complying party's

                                      58
<PAGE>

obligation to comply with the arbitrator's decision, all at the expense of the
non-complying party. To the maximum extent practicable, the arbitrator and the
parties, and the AAA if applicable, shall take any action necessary to insure
that the arbitration shall be concluded within ninety (90) days of the filing of
such dispute. The fees and expenses of the arbitrator shall be shared equally by
Lessor and Lessee except as otherwise specified above in this Section 25.3.
Unless otherwise agreed in writing by the parties or required by the arbitrator
or AAA, if applicable, arbitration proceedings hereunder shall be conducted in
the State. Notwithstanding formal rules of evidence, each party may submit such
evidence as each party deems appropriate to support its position and the
arbitrator shall have access to and right to examine all books and records of
Lessee and Lessor regarding the Hotel during the arbitration.


                                  ARTICLE 26
                                  ----------
                                    NOTICES

     26.1.  Notices. All notices, demands, requests, consents approvals and
            --------
other communications ("Notice" or "Notices") hereunder shall be in writing and
hand-delivered, sent by FedEx or other nationally recognized overnight courier
service, or mailed (by registered or certified mail, return receipt requested
and postage prepaid), if to Lessor at 306 East Main Street, Richmond, Virginia
23219, Attn: Glade M. Knight and if to Lessee at 306 East Main Street, Richmond,
Virginia 23219, Attn: Glade M. Knight or to such other address or addresses as
either party may hereafter designate. Personally delivered Notice shall be
effective upon receipt, and Notice given by overnight courier service or by mail
shall be complete at the time of deposit with the courier service or in the U.S.
Mail system, respectively, but any prescribed period of Notice and any right or
duty to do any act or make any response within any prescribed period or on a
date certain after the service of such Notice given by overnight courier service
shall be extended one (1) day and by mail shall be extended five (5) days.


                                  ARTICLE 27
                                  ----------
                                 MISCELLANEOUS

     27.1.  No Waiver. No failure by Lessor or Lessee to insist upon the strict
            ----------
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.

     27.2.  Remedies Cumulative. To the extent permitted by law and unless
            --------------------
otherwise provided herein to the contrary, each legal, equitable or contractual
right, power and remedy of Lessor or Lessee now or hereafter provided either in
this Lease or by statute or otherwise shall be cumulative and concurrent and
shall be in addition to every other right, power and remedy and the exercise or
beginning of the exercise by Lessor or Lessee of any one or more of such rights,
powers and remedies shall not preclude the simultaneous or subsequent exercise
by Lessor or Lessee of any or all of such other rights, powers and remedies.

                                      59
<PAGE>

     27.3.  Waiver of Trial by Jury. LESSOR AND LESSEE EACH WAIVE, TO THE
            ------------------------
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN THE
EVENT OF A PROCEEDING WITH RESPECT TO THIS LEASE, INCLUDING, WITHOUT LIMITATION,
SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN ARTICLE 16.

     27.4.  Acceptance of Surrender. No surrender to Lessor of this Lease or of
            -------------------------
the Leased Property or any part thereof, or of any interest therein, shall be
valid or effective unless agreed to and accepted in writing by Lessor and no act
by Lessor or any representative or agent of Lessor, other than such a written
acceptance by Lessor, shall constitute an acceptance of any such surrender.

     27.5.  No Merger of Title. There shall be no merger of this Lease or of the
            -------------------
leasehold estate created hereby by reason of the fact that the same Person may
acquire, own or hold, directly or indirectly: (a) this Lease or the leasehold
estate created hereby or any interest in this Lease or such leasehold estate and
(b) the fee estate in the Leased Property.

     27.6.  Waiver of Presentment, Etc. Lessee waives all presentments, demands
            ---------------------------
for payment and for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, and notices of acceptance and waives all notices
of the existence, creation, or incurring of new or additional obligations,
except as expressly granted herein.

     27.7.  Action for Damages. Except as otherwise expressly provided herein,
            -------------------
in any suit or other claim brought by either party seeking damages against the
other party for breach of its obligations under this Lease, the party against
whom such claim is made shall be liable to the other party only for actual
damages and not for consequential, punitive or exemplary damages.

     27.8.  Lease Assumption in Bankruptcy Proceeding. If an Event of Default
            ------------------------------------------
occurs and Lessee has filed or has had filed against it a petition in bankruptcy
or for reorganization or other relief pursuant to the federal bankruptcy code,
Lessee shall promptly move the court presiding over the proceeding to assume
this Lease pursuant to 11 U.S.C. (S)365, without seeking an extension of the
time to file said motion.

     27.9.  Enforceability. Anything contained in this Lease to the contrary
            ---------------
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision of this Lease or any application thereof
is invalid or unenforceable, the remainder of this Lease and any other
application of such term or provisions shall not be affected thereby. If any
late charges or any interest rate provided for in any provision of this Lease
are based upon a rate in excess of the maximum rate permitted by applicable law,
the parties agree that such charges shall be fixed at the maximum permissible
rate. Neither this Lease nor any provision hereof may be changed, waived,
discharged or terminated except by a written instrument in recordable form
signed by Lessor and Lessee. All the terms and provisions of this Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. The headings in this Lease are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
This Lease shall be

                                      60
<PAGE>

governed by and construed in accordance with the laws of the State, but not
including its conflicts of laws rules.

       27.10.  Memorandum of Lease. Lessor and Lessee shall promptly, upon the
               -------------------
request of either party, enter into a short form memorandum of this Lease, in
form suitable for recording under the laws of the State in which reference to
this Lease, and all options contained herein, shall be made. Lessee shall pay
all costs and expenses of recording such memorandum of this Lease.

                                      61
<PAGE>

     IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized officers as of the date first above written.

                              "LESSOR"

                              APPLE SUITES, INC.



                              By:     /s/ Glade M. Knight
                                     ------------------------------------
                              Name:   Glade M. Knight
                                     ------------------------------------
                              Title:  President
                                     ------------------------------------


                              "LESSEE"

                              APPLE SUITES MANAGEMENT, INC.


                              By:     /s/ Glade M. Knight
                                     ------------------------------------
                              Name:   Glade M. Knight
                                     ------------------------------------
                              Title:  President
                                     ------------------------------------
<PAGE>

                                   EXHIBIT A
                                   ---------

                               LEGAL DESCRIPTION
                               -----------------


                                   [OMITTED]
<PAGE>

                                   EXHIBIT B
                                   ---------

                                  WORK LETTER
                                  -----------

     This Work Letter describes and specifies the rights and obligations of
Apple Suites, Inc. ("Lessor"), and Apple Suites Management, Inc. ("Lessee"),
with respect to the design, construction, installation and payment for the
completion of Lessee's Work (as defined in Section 10.4 of the Lease).

     1. Definitions. Terms which are defined in that certain Hotel Lease
        -----------
Agreement (the "Lease") executed contemporaneously herewith, by and between
Lessor and Lessee, shall have the same meaning in this Work Letter.
Additionally, as used in this Work Letter, the following terms (when delineated
with initial capital letters) shall have the respective meaning indicated for
each as follows:

          (a) "Plans and Specifications" shall mean, collectively, the plans,
               ------------------------
     specifications and other information prepared or to be prepared by Lessee's
     architect and, where necessary, by Lessee's electrical, mechanical and
     structural engineers, which shall detail Lessee's Work and which shall be
     approved in writing by both Lessee and Lessor prior to the commencement of
     such work.  The Plans and Specifications shall comply with the minimum
     requirements established by Lessor.

          (b) "Cost of the Work" shall mean the actual contract costs of all
               ----------------
     materials and labor for the design, construction and installation to
     completion of the Lessee's Work in accordance with the Plans and
     Specifications.

          (c) "Change Cost" shall mean any increase in the Cost of the Work
               -----------
     attributable to any change in the Plans and Specifications.

     2. Procedure for the Completion of Plans and Specifications.  The Plans and
        --------------------------------------------------------
Specifications shall be completed in accordance with the following procedure:

          (a) Design Drawings.  Lessee shall submit to Lessor design drawings
              ---------------
     specifying the intended design, character and finishing of Lessee's Work.
     The design drawings shall set forth the requirements of Lessee with respect
     to the installation of Lessee's Work.

               (i)  After receipt of design drawings, Lessor shall return to
          Lessee Lessor's required modifications and/or approval.

               (ii) If Lessor requires modifications, the design drawings shall
          be revised by Lessee and resubmitted to Lessor for approval. Unless
          such action is taken, Lessee will be deemed to have accepted and
          approved all of Lessor's comments on the design drawings. This process
          will continue until approval of Lessor is obtained.
<PAGE>

          (b) Completion of Plans and Specifications.  All Plans and
              --------------------------------------
     Specifications shall be prepared in strict compliance with applicable
     standards and requirements as set forth in the Lease, this Work Letter and
     otherwise, and shall also adhere to the design drawings approved by Lessor.
     Lessee shall deliver to Lessor, as soon as practicable after the date of
     Lessor's approval of design drawings, the proposed Plans and
     Specifications. If the Plans and Specifications are returned to Lessee with
     comments, but not bearing approval of Lessor, the Plans and Specifications
     shall be revised by Lessee and resubmitted to Lessor for approval. This
     process will continue until approval of Lessor is obtained.

          (c) Compliance with Laws.  Lessee shall have the sole responsibility
              --------------------
     for compliance of the Plans and Specifications with all applicable
     statutes, codes, ordinances and other regulations. The approval of the
     Plans and Specifications or calculations included therein by Lessor shall
     not constitute an indication, representation or certification by Lessor
     that such Plans and Specifications or calculations are in compliance with
     said statutes, codes, ordinances and other regulations. In instances where
     several sets of requirements must be met, the requirements of Lessor's
     insurance underwriter or the strictest applicable requirements shall apply
     where not prohibited by applicable codes.

     3. Pricing.  As soon as practicable after finalization of the Plans and
        -------
Specifications, as evidenced by Lessor's written approval thereof, Lessee shall
notify Lessor in writing of the Cost of the Work.  Lessor shall either approve
the Cost of the Work in writing or request that the Plans and Specifications and
the Cost of the Work be revised and resubmitted to Lessor for approval.  Lessee
shall revise the Plans and Specifications and the Cost of the Work and resubmit
them to Lessor for approval.  This procedure shall continue until Lessor
approves the Cost of the Work.

     4. Performance of Work and Delays.  Lessee shall select one or more
        ------------------------------
contractors ("Contractors") to furnish labor and/or materials for the Lessee's
Work in substantial accordance with the Plans and Specifications. Each
Contractor and the contract between Lessee and such Contractor must be approved
in advance by Lessor. After Lessor's approval of the Plans and Specifications,
the Cost of the Work, Contractors and contracts, Lessee agrees to cause the
Contractors to commence the construction and installation of the Lessee's Work
as promptly as reasonably practicable and to proceed with due diligence to
perform Lessee's Work in a good and workmanlike manner. Lessee warrants to
Lessor that all materials and equipment furnished in constructing and installing
the Lessee's Work will be new, unless otherwise specified to Lessor, and that
such work shall be of good quality, free from faults and defects; provided,
however, Lessor's sole remedy for breach of the above warranty shall be that
Lessee, for a period of twelve (12) months after substantial completion of the
Lessee's Work, at its sole cost and expense, will make all necessary repairs,
replacements and corrections of any nature or description as may become
necessary by reason of faulty construction, labor or materials in the Lessee's
Work. Any delays in the completion of Lessee's Work shall not justify any
abatement or reduction of the rent payable under the Lease.

     5. Payments for Cost of Work.  Lessor shall be liable for payment of the
        -------------------------
Cost of the Work. Within ten (10) days after Lessor's receipt of an invoice from
Lessee, together with supporting billing statements, architect certificates and
other detailed information required by the construction contracts with the
Contractors, Lessor shall pay to Lessee the amount of the invoice. Lessee shall

                                       2
<PAGE>

pay over to its Contractors any payments by Lessor to Lessee for the Cost of the
Work. Lessor may, at its option, elect to make its payments for the Cost of the
Work directly to the Contractors rather than to Lessee. Lessor shall not be
obligated to pay for, and Lessee shall not pay for, any work performed by any of
the Contractors or their mechanics, workmen or subcontractors until Lessor has
received a lien waiver from any said party.

     6. Change Orders.  All changes and modifications in Lessee's Work from that
        -------------
contemplated in the Plans and Specifications, whether or not such change or
modification gives rise to a Change Cost, must be evidenced by a written change
order executed by both Lessor and Lessee.  In that regard, Lessee shall submit
to Lessor such information as Lessor shall require with respect to any change
order requested by Lessee.  After receipt of any requested change order,
together with such information as Lessor shall require with respect thereto,
Lessor shall return to Lessee either the executed change order, which will
evidence Lessor's approval thereof, or the Plans and Specifications with respect
thereto with Lessor's suggested modifications.  Lessee shall revise the change
order and resubmit it to Lessor.  This process will continue until Lessor's
approval is obtained.

     7. Punch List.  Within ten (10) days after Lessor receives notice from
        ----------
Lessee of the substantial completion of Lessee's Work, Lessor shall give Lessee
written notice specifying any details of construction, decoration, installation
or mechanical adjustment which remain to be performed with respect to Lessee's
Work; and except for the details contained in such written notice from Lessor,
all obligations of Lessee in regard to Lessee's Work shall be deemed to have
been satisfied. Lessor or its agents, servants, employees or contractors shall
have the right to enter the Leased Improvements during the progress and after
the completion of the Lessee's Work to inspect any details of the Lessee's Work,
and entry by Lessor, its agents, servants, employees or contractors for such
purpose shall not relieve Lessee of any of its obligations under the Lease or
impose any liability on Lessor or its agents, servants, employees or
contractors.

     8. Insurance; Liability.  Lessee shall procure and maintain adequate
        --------------------
Workmen's Compensation and public liability insurance for bodily injury and
property damage, all in amounts, with companies and in forms satisfactory to
Lessor. Lessee shall also cause each of the Contractors to provide and maintain
certificates of such insurance and furnish copies of same to Lessor prior to
proceeding with the Lessee's Work. Lessor shall not be liable in any way for any
injury, loss or damage which may occur in connection with or as a result of the
Lessee's Work, the same being solely at Lessee's risk. Lessee shall hold Lessor
harmless from any claim, demand or action arising from the construction or
installation activities in connection with Lessee's Work, the Contractors or any
workmen, mechanics or subcontractors working on the Lessee's Work.

     9. Whole Agreement; No Oral Modification.  This Work Letter and the Lease
        -------------------------------------
embody all representations, warranties and agreements of Lessor and Lessee with
respect to the matter described herein, and this Work Letter may not be altered
or modified except by an agreement in writing signed by the parties.

     10. Paragraph Headings.  The paragraph headings contained in this Work
         ------------------
Letter are for convenient reference only and shall not in any way affect the
meaning or interpretation of such paragraphs.

                                       3
<PAGE>

     11. Notices. All notices required or contemplated hereunder shall be given
         -------
to the parties in the manner specified for giving notices under the Lease.

     12. Binding Effect.  This Work Letter shall be construed under the laws of
         --------------
the State of Texas and shall be binding upon and shall inure to the benefit of
the parties hereto and their respective permitted successors and assigns.

     13. Conflict.  In the event of conflict between this Work Letter and any
         --------
other exhibits or addenda to the Lease, this Work Letter shall prevail.

     DATED as of the 26th day of April, 2001.


                              "LESSOR"

                              APPLE SUITES, INC.



                              By:     /s/ Glade M. Knight
                                     --------------------------------
                              Name:   Glade M. Knight
                                     --------------------------------
                              Title:  President
                                     --------------------------------



                              "LESSEE"

                              APPLE SUITES MANAGEMENT, INC.


                              By:     /s/ Glade M. Knight
                                     ---------------------------------
                              Name:   Glade M. Knight
                                     ---------------------------------
                              Title:  President
                                     ---------------------------------

                                       4
<PAGE>

                                SCHEDULE 3.1(b)
                                ---------------
                            SUITE REVENUE BREAKPOINT
                            ------------------------

     Homewood Suites(R) Atlanta - Buckhead
     Atlanta, Georgia

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Quarters            2001      2002      2003      2004      2005      2006      2007      2008      2009      2010
----------------  --------  --------  --------  --------  --------  --------  --------  --------  --------  --------
<S>               <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
1/st/ Quarter     $     --  $158,119  $162,862  $167,748  $172,781  $177,964  $183,303  $188,802  $194,466  $200,300

2/nd/ Quarter     $138,866  $316,238  $325,725  $335,496  $345,561  $355,928  $366,606  $377,604  $388,932  $400,600

3/rd/ Quarter     $335,414  $474,356  $488,587  $503,245  $518,342  $533,892  $549,909  $566,406  $583,398  $600,900

4/th/ Quarter     $531,962  $632,475  $651,449  $670,993  $691,123  $711,856  $733,212  $755,208  $777,864  $801,200
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</TABLE>