Document:

Exhibit 10.1

                                                                  [Pennsylvania]

                                    INDEMNITY

                                                                     May 8, 2000

Promus Hotels, Inc.
755 Crossover Lane
Memphis, Tennessee 38117-4900

Attention:   General Counsel

             Loan:         Purchase money financings aggregating $80,186,250
             Borrower:     Apple Suites, Inc.,  individually  and as trustee for
                           Apple Suites Pennsylvania Business Trust
             Premises:     12 East Swedesford Road, Malvern, Pennsylvania

Dear Sirs:

                  Except to the extent of any  existing  liability of you and/or
your  affiliates  for  Corrective  Work  with  respect  to  Hazardous  Materials
currently in, on or under the Property,  for good and valuable  consideration in
hand received,  the undersigned,  and if there are two or more signers,  each of
us,  hereby  jointly and severally  covenants  and agrees for your  benefit,  in
addition to, and not in limitation  of, any other rights and remedies  available
to you at law or in equity, as follows:

         1.  Definitions:  The  following  terms  shall be  defined as set forth
             below.

             (a)  Corrective   Work:  The  removal,   relocation,   elimination,
                  remediation or encapsulation  of Hazardous  Materials from all
                  or any portion of the Property and (to the extent  provided in
                  Subparagraph 2(b) hereof) surrounding areas and, to the extent
                  thereby required, the reconstruction and rehabilitation of the
                  Property  pursuant to, and in  compliance  with,  Governmental
                  Requirements;

             (b)  Governmental Requirements: Any present and future (i) federal,
                  state or local laws, rules or regulations and (ii) judicial or
                  administrative  interpretation thereof, including any judicial
                  or administrative orders or judgments;

             (c)  Hazardous   Materials:   (i)  Asbestos   and   polychlorinated
                  biphenyls and (ii)  hazardous or toxic  materials,  wastes and
                  substances which are defined, determined or identified as such
                  (including petroleum

<PAGE>

                  products if they are  defined,  determined  or  identified  as
                  such) in, or subject  to, any  Governmental  Requirements,  in
                  each case in amounts in violation of  applicable  Governmental
                  Requirements;

         (d)      Indemnified  Losses:  Incurred damages,  losses,  liabilities,
                  costs and  expenses of  Corrective  Work,  including,  without
                  limitation,  obligations, penalties, fines, impositions, fees,
                  levies,  lien removal or bonding  costs,  claims,  litigation,
                  demands,  defenses,  judgments,  suits,  proceedings,   costs,
                  disbursements  or  expenses  (including,  without  limitation,
                  attorneys' and experts'  reasonable fees and disbursements) of
                  any kind and nature whatsoever, including interest thereon;

         (e)      Loan   Documents:   The   documents   comprising   the   total
                  documentation  pertaining to the Loan indicated above made to,
                  or for the benefit of, the  above-named  Borrower,  including,
                  without  limitation,  and as applicable,  any loan  agreement,
                  building loan or construction loan agreement,  note, mortgage,
                  deed of trust,  security  agreement,  assignment of leases and
                  rents,  any guaranty or guaranties  (whether of payment and/or
                  performance),   pledge  agreement,   commitments,  letters  of
                  credit,  assignment of  partnership  interests,  and all other
                  instruments and documents evidencing,  securing, or collateral
                  to, the Loan;

         (f)      Property:  The land more  particularly  described in Exhibit A
                  hereto  attached and as  indicated  above,  together  with the
                  buildings,  improvements,  structures and  betterments  now or
                  hereafter existing thereon or thereunder.

     2.  (a) Except as hereinafter limited in Paragraph 9 and Subparagraphs 2(b)
         and 2(c), the  undersigned  covenant and agree,  at their sole cost and
         expense,  to indemnify,  protect and save you harmless against and from
         any and all  Indemnified  Losses which may at any time be imposed upon,
         incurred by or asserted or awarded  against you arising  from,  out of,
         attributable to or by reason of, the:

                  (i)  nonperformance  or delayed  performance and completion of
                  Corrective Work; or

                  (ii)  enforcement  of this  Indemnity or the  assertion by the
                  undersigned  of  any  defense  to  its  obligations  hereunder
                  (except  the  successful  defense  of actual  performance  not
                  subject to further appeal);

         whether  the  Indemnified   Losses  arise  before,   during  or  after,
         enforcement of the remedies and rights  available to you under the Loan
         Documents,  including the acquisition of title to all or any portion of
         the Property by you or your successors or affiliates (as such terms are
         defined in Paragraph 8(a) hereof).

                                       2

<PAGE>

         (b) The Indemnified  Losses shall not extend to the costs of Corrective
         Work  pertaining  to  surrounding  areas  if the  applicable  Hazardous
         Materials  did not originate  from any portion of the Property,  unless
         the removal of the Hazardous  Materials from the  surrounding  areas by
         Borrower is necessitated by Governmental Requirements.

         (c) If you, or any of your successors or affiliates, take

             (i) title to the Property at a foreclosure sale, at a sale pursuant
             to a power of sale under a mortgage or deed of trust, or by deed in
             lieu of foreclosure, or by exercise of other remedial rights; or

             (ii)  possession,   custody  and  control  of  the  Property  as  a
             mortgagee-in-possession  or through court  designated  receiver and
             Borrower,  and its successors or affiliates,  never  reacquire such
             possession, custody and control,

         then the  Indemnified  Losses  shall not include or apply to  Hazardous
         Materials which are initially placed on, in or under all or any portion
         of the Property at any time thereafter.

     3.  (a) So long as  Borrower is in  possession,  custody and control of the
         Property you agree that prior to the  undertaking of Corrective Work by
         you, the Borrower or the undersigned may at their sole cost and expense
         contest the  Governmental  Requirements  and/or  perform any Corrective
         Work,  provided that at all times all of the following  conditions  are
         continuously satisfied in full:

             (i)   no uncured event of  default  (other  than as  related to the
             Hazardous  Materials  involved in such contest or Corrective  Work)
             exists under any of the Loan Documents;

             (ii)  you  (and  your  agents,   officers,   directors,   servants,
             employees,  contractors and  shareholders)  shall not be subject to
             any  criminal or other  penalties,  fines,  costs or  expenses,  by
             reason  of  such  contest  or  Corrective  Work  or any  delays  in
             connection therewith;

             (iii) unless the  undersigned has instituted a contest as permitted
             hereunder  with respect to any  Corrective  Work,  the  undersigned
             shall commence the Corrective Work promptly after obtaining  actual
             knowledge of the Hazardous Materials on, in, under or affecting the
             Property or any surrounding  areas,  but at least fifteen (15) days
             prior to  commencement of such  Corrective  Work,  submit to you in
             conformity with your reasonable  requirements  (which  requirements
             may not create conditions which violate

                                       3

<PAGE>

         Governmental   Requirements),   reasonably   detailed  plans  for  such
         Corrective Work complying with  Governmental  Requirements.  If, within
         said fifteen (15)-day period, you, in your reasonable judgment,  reject
         such  plans,  the  undersigned  shall  promptly  submit  revised  plans
         conforming to your reasonable requirements to you for your approval. If
         within  fifteen (15) days from your receipt of the original  plans,  or
         revised plans,  you fail to approve or reject such original  plans,  or
         revised plans, as the case may be, the same shall be deemed accepted by
         you. All  Corrective  Work shall be performed in  compliance  with such
         approved original or revised plans;

         (iv) a contest,  if instituted,  shall be instituted promptly after the
         undersigned,  or Borrower, obtains actual knowledge of an action, suit,
         proceeding,  or  governmental  order or  directive  which  asserts  any
         obligation  or liability  affecting all or any portion of the Property,
         or Borrower or any of the undersigned and diligently prosecuted until a
         final judgment is obtained;

         (v)  Corrective  Work  shall  be  instituted   promptly   following  an
         unsuccessful  nonappealable  completion  of the  contest  and  shall be
         diligently  prosecuted  until the Hazardous  Materials  involved in the
         contest are  removed,  relocated,  encapsulated  and/or  disposed of as
         required by the Governmental Requirements;

         (vi) the  undersigned  shall  notify  you  within  ten (10) days  after
         commencement of such contest or Corrective Work and shall render to you
         a written monthly report detailing the progress thereof  including such
         information as you shall reasonably request; and

         (vii) if you are named in any action or proceeding as a necessary party
         or as a party defendant  relating to matters covered by this Indemnity,
         you agree to utilize counsel designated by the undersigned,  subject to
         your right of approval,  not to be unreasonably withheld or delayed. If
         you are not  named in any  such  action  or  proceeding,  you,  at your
         expense,  shall have the right (but not the  obligation) to join in any
         action or proceeding in which the undersigned or Borrower  contests any
         Governmental Requirements.

     So long as all of such  conditions are  continuously  satisfied,  you agree
     that you will not enter  into any  settlement  agreement  binding  upon the
     undersigned,  or Borrower,  without their prior consent, which consent will
     not be unreasonably withheld or delayed.

     (b)  Promptly  after the receipt by you of written  notice of any demand or
     claim or the  commencement of any action,  suit or proceeding in respect of
     any

                                       4

<PAGE>

     of the  Indemnified  Losses,  you shall notify the  undersigned  thereof in
     writing,  but the failure by you  promptly  to give such  notice  shall not
     relieve the undersigned of any of their  obligations  under this Indemnity,
     except to the extent of prejudice to any defense to such Indemnified Losses
     resulting from such delay.

4.   The liability of the  undersigned  under this Indemnity  shall in no way be
     limited  or  impaired  by (a) any  amendment  or  modification  of the Loan
     Documents;  (b) any extensions of time for  performance  required by any of
     the Loan Documents; (c) any sale, assignment or foreclosure pursuant to the
     Loan  Documents or any sale or transfer of all or any part of the Property;
     (d) any  exculpatory  provision in any of the Loan Documents  limiting your
     recourse to the Property or to any other security,  or limiting your rights
     to a deficiency  judgment against  Borrower,  or the  undersigned;  (e) the
     accuracy or inaccuracy  of any  representations  or warranties  made to you
     under the Loan  Documents;  (f) the release of Borrower or any other person
     from performance or observance of any of the agreements,  covenants,  terms
     or conditions  contained in any of the Loan  Documents by operation of law,
     your voluntary act, or otherwise; (g) the release or substitution, in whole
     or in part,  of any security for the note or other  evidence of debt issued
     pursuant to the Loan  Documents;  (h) your failure to record or file any of
     the Loan Documents (or your improper recording or filing of any thereof) or
     to otherwise  perfect,  protect,  secure or insure any security interest or
     lien given as security for the note or other evidence of indebtedness under
     the Loan Documents,  (i) any other action or circumstance  whatsoever which
     constitutes,  or might be  construed  to  constitute,  a legal or equitable
     discharge or defense of Borrower or others for their  obligations under any
     of the Loan Documents or of the  undersigned  for their  obligations  under
     this Indemnity or (j) the invalidity, irregularity or unenforceability,  in
     whole or in part, of any of the Loan  Documents;  and in any of such cases,
     whether with or without notice to Borrower or the  undersigned  and with or
     without consideration.

5.   The  undersigned  (a)  waive  any  right  or  claim  of  right  to  cause a
     marshalling of the undersigned's  assets or to cause you to proceed against
     any of the security for the Loan  Documents  before  proceeding  under this
     Indemnity  or to  cause  you to  proceed  against  the  undersigned  in any
     particular order; (b) agree that any payments required to be made hereunder
     shall  become  due on  demand;  (c) waive and  relinquish  all  rights  and
     remedies  accorded by applicable law to  indemnitors or guarantors,  except
     any rights of subrogation which the undersigned may have, provided that (i)
     the indemnity  provided for hereunder  shall neither be contingent upon the
     existence  of any such rights of  subrogation  nor subject to any claims or
     defenses   whatsoever   which  may  be  asserted  in  connection  with  the
     enforcement or attempted  enforcement of such subrogation rights including,
     without  limitation,  any claim that such subrogation rights were abrogated
     by any of your acts, and (ii) the undersigned  postpone and subordinate (A)
     the exercise of any and all of

                                       5

<PAGE>

     their rights of subrogation to your rights  against the  undersigned  under
     this Indemnity and (B) any rights of subrogation to any collateral securing
     the Loan until the Loan shall have been paid in full.

6.   No delay on your part in exercising any right, power or privilege under any
     of the Loan  Documents  shall  operate  as a waiver of any such  privilege,
     right or power.

7.   Any one or more of the  undersigned,  or any other party  liable upon or in
     respect of this  Indemnity or the Loan,  may be released from liability (in
     whole or in part)  under  this  Indemnity  or the  Loan  Documents  without
     affecting  the  liability  hereunder  of  any  of  the  undersigned  not so
     released.

8.   (a)  This  Indemnity  shall  be  binding  upon the  undersigned  and  their
     respective  heirs,  personal  representatives,  successors  and assigns and
     shall inure to the benefit of and, where applicable, shall be binding upon,
     you and your  successors and  affiliates,  which acquire all or any part of
     the  Property  by any  sale,  assignment  or  foreclosure  under  the  Loan
     Documents,  by  deed  or  other  assignment  in  lieu  of  foreclosure,  or
     otherwise,  including if you, or such successor,  affiliate or participant,
     is the  successful  bidder at a foreclosure  or other  remedial  sale.  For
     purposes of this Indemnity your (i)  "successors"  shall mean successors by
     merger,  consolidation  or acquisition of all or a substantial part of your
     assets and business and (ii)  "affiliates"  shall mean your parent, if any,
     or its successors as above defined and any direct or indirect subsidiary or
     affiliate of your parent or its successors as above defined.

     (b) Except as provided in Subparagraph  8(a) above,  the obligations of the
     undersigned  under this Indemnity shall not inure to the benefit of (i) any
     other purchaser of the Property at a foreclosure sale or a sale pursuant to
     a power of sale or other  remedial  rights under the Loan Documents or (ii)
     any  subsequent  holder of the Loan  Documents  unless  such holder is your
     successor, affiliate or participant as hereinabove defined.

9.   (a) Except as provided in  Subparagraph  9(b) hereof,  this Indemnity shall
     terminate  and be of no further  force and effect  upon  payment in full by
     Borrower or guarantor of all  principal,  interest and other sums and costs
     evidenced or secured by the Loan  Documents,  provided  that at the time of
     such full payment neither you, nor your successors or affiliates,  have, at
     any time, or in any manner, through exercise of their remedial rights under
     the Loan  Documents,  participated  in the  management or control of, taken
     possession of, or title to, the Property or any portion thereof, whether by
     foreclosure, deed in lieu of foreclosure, sale under power of sale pursuant
     to the Loan Documents, or otherwise.

     (b)  Notwithstanding  Subparagraph  9(a) above, the undersigned  agree that
     this  Indemnity  shall continue after full payment of the Loan with respect
     to:

                                       6

<PAGE>

             (i)  litigation  or  administrative  claims  involving  Indemnified
             Losses pertaining to Hazardous  Materials covered by this Indemnity
             pending at the date of payment in full of the Loan, and

             (ii)  reasonable  costs  and  expenses   (including   experts'  and
             attorneys' fees and  disbursements)  incurred or expended by you in
             (A) enforcing  Subparagraph  2(a)(ii) of this  Indemnity or (B) any
             litigation, arbitration,  administrative claims or matters relating
             to any  Indemnified  Losses  subsequently  arising  within four (4)
             years  after  the date of such  full  payment  (hereinafter  called
             ("Subsequent Claims") involving Hazardous Materials on, in or under
             the  Property,  or if covered by this  Indemnity,  any  surrounding
             areas, but the undersigned's  obligation under this Indemnity as to
             Subsequent Claims is hereby limited and shall not extend to payment
             of any monetary awards or damages against you but only to the costs
             and  expenses  above  mentioned.   You  agree  to  utilize  counsel
             designated by the  undersigned  (whether or not the undersigned are
             also parties  defendant in such  matters)  subject to your right of
             approval, not to be unreasonably withheld or delayed.

10.  This  Indemnity   shall   continue  to  be  effective,   or  be  reinstated
     automatically,  as the case may be, if at any time payment,  in whole or in
     part, of any of the obligations  indemnified against hereby is rescinded or
     otherwise  must be restored or  returned by you  (whether as a  preference,
     fraudulent  conveyance  or  otherwise)  upon  or  in  connection  with  the
     insolvency,  bankruptcy,  dissolution,  liquidation  or  reorganization  of
     Borrower,  any of the  undersigned  or any  other  person,  or upon or as a
     result of the  appointment of a receiver,  intervenor or conservator of, or
     trustee or similar  officer for,  Borrower,  any of the  undersigned or any
     other  person  or  for  a  substantial  part  of  Borrower's,  any  of  the
     undersigned's or any of such other person's  property,  as the case may be,
     or  otherwise,  all as though such  payment had not been made.  Each of the
     undersigned  further agrees that in the event any such payment is rescinded
     or must be restored or returned, all costs and expenses (including, without
     limitation,  legal fees and expenses)  incurred by you or on your behalf in
     defending or enforcing such continuance or  reinstatement,  as the case may
     be, shall constitute costs of enforcement  which are covered by each of the
     undersigned's indemnification obligations under this Indemnity.

11.  Each of the undersigned represents and covenants to you that:

             (i)  if a  corporation,  partnership,  venture,  trust  or  limited
             liability  company,  it is duly organized,  validly existing and in
             good standing  under the laws of the state of its formation and has
             full power and  authority  to execute,  deliver  and  perform  this
             Indemnity;  each of the undersigned will preserve and maintain such
             legal existence and good standing;

                                       7

<PAGE>

             (ii)  there  are  no  actions,  suits  or  proceedings  pending  or
             threatened against or affecting Borrower or any of the undersigned,
             at law,  in equity or  before  or by any  governmental  authorities
             except  actions,  suits or  proceedings  which are fully covered by
             insurance or would, if adversely determined,  not be likely to have
             a material adverse effect on Borrower's or any of the undersigned's
             business or financial  condition;  neither  Borrower nor any of the
             undersigned is in material default with respect to any order, writ,
             injunction,   decree  or  demand  of  any  court  or   governmental
             authorities;

             (iii) the consummation of the transactions  contemplated hereby and
             the  performance  of this  Indemnity have not resulted and will not
             result  in any  breach  of, or  constitute  a  default  under,  any
             mortgage,  deed of trust,  lease,  bank  loan or credit  agreement,
             corporate  charter,   by-laws,   partnership   agreement  or  other
             instrument to which any of the  undersigned  is a party or by which
             any of the undersigned may be bound or affected; and

             (iv)  each  of the  undersigned  is in  compliance  with,  and  the
             transactions  contemplated  by this  Indemnity  do not and will not
             violate any  provision  of, or require  any  filing,  registration,
             consent or approval under,  any federal,  state or local law, rule,
             regulation,  ordinance, order, writ, judgment,  injunction, decree,
             determination or award  (hereinafter,  "Laws")  presently in effect
             having  applicability  to it; each of the  undersigned  will comply
             promptly   with  all  Laws  now  or  hereafter  in  effect   having
             applicability to it.

12.  You  shall,  at all  times,  at your  discretion  and  expense,  be free to
     independently establish to your satisfaction the existence or non-existence
     of any  fact or  facts,  the  existence  or  non-existence  of  which  is a
     condition of this Indemnity or any of its provisions.

13.  This Indemnity may be executed in one or more  counterparts,  each of which
     shall be deemed an original. Said counterparts shall constitute but one and
     the same  instrument  and shall be binding upon each of the  undersigned as
     fully and completely as if all had signed but one instrument. The joint and
     several  liability of the undersigned shall be unaffected by the failure of
     any of the undersigned to execute any or all of the counterparts.

14.  All notices  hereunder shall be in writing and shall be deemed to have been
     sufficiently  given or served for all purposes  when sent by  registered or
     certified mail, if to the undersigned at their respective  addresses stated
     on the  signature  page  hereof and if to you,  at your  address  indicated
     above,  or at such other  address of which a party shall have  notified the
     party  giving  such  notice in writing  in  accordance  with the  foregoing
     requirements.

                                       8

<PAGE>

15.  No  provision  of this  Indemnity  may be changed,  waived,  discharged  or
     terminated  orally,  by  telephone  or by  any  other  means  except  by an
     instrument in writing  signed by the party against whom  enforcement of the
     change, waiver, discharge or termination is sought.

16.  THE UNDERSIGNED BY EXECUTION HEREOF, AND YOU, BY ACCEPTANCE HEREOF,  HEREBY
     EXPRESSLY AND UNCONDITIONALLY WAIVE, IN CONNECTION WITH ANY SUIT, ACTION OR
     PROCEEDING  BROUGHT BY YOU ON THIS INDEMNITY,  ANY AND EVERY RIGHT THEY MAY
     HAVE TO A TRIAL BY JURY.

17.  THIS  INDEMNITY  AND THE RIGHTS AND  OBLIGATIONS  OF THE PARTIES  HEREUNDER
     SHALL IN ALL  RESPECTS  BE  GOVERNED  BY, AND  CONSTRUED  AND  ENFORCED  IN
     ACCORDANCE  WITH,  THE LAWS OF THE  STATE OF  TENNESSEE  APPLICABLE  TO THE
     INTERPRETATION, CONSTRUCTION AND ENFORCEMENT OF INDEMNITIES (WITHOUT GIVING
     EFFECT TO  TENNESSEE'S  PRINCIPLES  OF CONFLICTS OF LAW).  THE EXISTENCE OF
     HAZARDOUS  MATERIALS SHALL BE DETERMINED IN ACCORDANCE WITH FEDERAL LAW AND
     STATE AND LOCAL LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED.

18.  THE UNDERSIGNED IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY
     TENNESSEE  STATE OR FEDERAL COURT SITTING IN THE CITY OF MEMPHIS,  STATE OF
     TENNESSEE,  OVER ANY SUIT, ACTION OR PROCEEDING  ARISING OUT OF OR RELATING
     TO THIS INDEMNITY AND THE  UNDERSIGNED  AGREE AND CONSENT THAT, IN ADDITION
     TO ANY METHODS OF SERVICE OF PROCESS PROVIDED FOR UNDER APPLICABLE LAW, ALL
     SERVICE  OF PROCESS IN ANY SUCH  SUIT,  ACTION OR  PROCEEDING  IN ANY ABOVE
     STATED  COURT  SITTING IN THE CITY OF MEMPHIS MAY BE MADE BY  CERTIFIED  OR
     REGISTERED MAIL, RETURN RECEIPT  REQUESTED,  DIRECTED TO THE UNDERSIGNED AT
     THEIR  RESPECTIVE  ADDRESSES  INDICATED ON THE SIGNATURE  PAGE HEREOF,  AND
     SERVICE SO MADE SHALL BE  COMPLETE  FIVE (5) DAYS AFTER THE SAME SHALL HAVE
     BEEN SO MAILED.

                                       9

<PAGE>

                                   Very truly yours,

Indemnitor:                                Address Of Indemnitor:
----------                                 ---------------------

APPLE SUITES, INC., a                      306 East Main Street
Virginia corporation                       Richmond, Virginia 23219
                                           Attention:  Mr. Glade M. Knight

By  /s/  Glade M. Knight                   With a copy to:
  ----------------------------
     Name:  Glade M. Knight
     Title: Chairman of the Board          Thomas E. Davis, Esq.
            and President                  Jenkens & Gilchrist
                                           1445 Ross Avenue, Suite 3200
                                           Dallas, Texas 75202-2799

                  This is to certify  that this  Indemnity  was  executed  in my
presence on the date hereof by the parties whose signatures  appear above in the
capacities indicated.

                                           /s/ Jacquelyn B. Owens
                                           -------------------------------------
                                           Notary Public

                                           My commission expires:

                                            6/30/03
                                           -------------------------------------

                                       10

<PAGE>

                                    EXHIBIT A

                          LEGAL DESCRIPTION OF PREMISES

ALL THAT CERTAIN  parcel of land  SITUATE in East  Whiteland  Township,  Chester
County, Pennsylvania, being bounded and described according to a Survey and Plan
thereof entitled ALTA/ACSM Land Title Survey for Promus Hotel Corporation, dated
August 12, 1996 by Chester Valley  Engineers,  Inc.,  Paoli,  Pennsylvania,  and
being more fully described as follows:

BEGINNING at a point on the southerly legal Right of Way Line of Swedesford Road
- S. R. 1002, 94 feet wide, a corner in common of these and lands now or late of
the Pennsylvania State University;  THENCE from the point of beginning,  leaving
said right of way line, along said lands, South 28 degrees 04 minutes 35 seconds
East  566.35  feet  to a  point  on  line  of  other  lands  now or  late of the
Pennsylvania  State  University;  THENCE along said lands,  along the  northerly
Legal  Right of Way Line for  Limited  Access of U.S.  Route  202 - S. R.  0202,
variable width,  South 59 degrees 09 minutes 34 seconds West 168.05 feet; THENCE
continuing  along said right of way line, North 88 degrees 24 minutes 32 seconds
West 186.61  feet to a corner of lands now or late of Loretta M.  Cimeo,  et al:
THENCE  leaving  said right of way line,  along said lands,  North 28 degrees 04
minutes 35 seconds West 457.22 feet to a point on the  southerly  Legal Right of
Way Line of Swedesford Road - S.R. 1002,  aforesaid;  THENCE along said right of
way line,  along a curve to the right having a radius of 13.468.61  feet, an arc
length of 330.94  feet,  and a chord  bearing  North 57  degrees  36  minutes 55
seconds East 330.94 feet to the point of beginning.Exhibit 10.2

                          MASTER HOTEL LEASE AGREEMENT

                             DATED AS OF MAY 8, 2000

                                     BETWEEN

                       APPLE SUITES, INC., AS TRUSTEE FOR
                    APPLE SUITES PENNSYLVANIA BUSINESS TRUST
                          A PENNSYLVANIA BUSINESS TRUST

                                    AS LESSOR

                                       AND

                          APPLE SUITES MANAGEMENT, INC.
                             A VIRGINIA CORPORATION

                                    AS LESSEE

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                 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.................................................................23
   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
</TABLE>

                                        i
<PAGE>

<TABLE>
<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
</TABLE>

                                       ii
<PAGE>

<TABLE>
<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................................................................................59
   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 2.1 - Commencement Dates
Schedule 3.1(a) - Base Rents
Schedule 3.1(b) - Suite Revenue Breakpoint

                                       iv

<PAGE>

                          MASTER HOTEL LEASE AGREEMENT

         THIS MASTER HOTEL LEASE AGREEMENT (hereinafter called "Lease"), made as
of the 8th day of May,  2000,  by and between  Apple Suites Inc., as trustee for
Apple  Suites  Pennsylvania   Business  Trust,  a  Pennsylvania  Business  Trust
(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

                                       1
<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

                                       4
<PAGE>

against or imposed upon Lessor, Lessee, any Predecessor,  the Leased Property or
any property used therein and arising out of:

                  (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.

                                       5
<PAGE>

                  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.

                  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

                                       6
<PAGE>

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.

                  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

                                       7
<PAGE>

percent (20%) decline in average hotel occupancy for the Hotel's Competitive Set
from the average  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.

                                       8
<PAGE>

                  Lease:  This Lease.

                  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,

                                       9
<PAGE>

personal representatives,  successors and assigns of any such officer, director,
stockholder, partner, member, manager, employee, agent or representative.

                  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.

                                       10
<PAGE>

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

                  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.

                                       11
<PAGE>

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

                  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 on the
date specified in Schedule 2.1 (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  specified  in Schedule  3.1(a)
(prorated  for fiscal year  1999),  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  month in the  first  partial  and next two full
                  calendar  quarters at the beginning of the Term,  Lessee shall
                  pay  on or  before  the  15th  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 15th 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 for 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 15th 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
                  ninety-nine percent (99%) 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 15th
                  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 and 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 and 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 and 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 and 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,  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.

                                       22
<PAGE>

         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
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

                                       23
<PAGE>

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 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

                                       24
<PAGE>

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  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

                                       25
<PAGE>

analysis of  categories  of potential  guests,  and a  description  of sales and
marketing activities designed to achieve and implement identified objectives and
strategies.

         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

                                       26
<PAGE>

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,  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 the

                                       41
<PAGE>

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  terminated  without
purchase by Lessee as described in Section  14.2,  all such  insurance  proceeds

                                       42
<PAGE>

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 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.

                                       50
<PAGE>

         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  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

                                       51
<PAGE>

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
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.

                                       52
<PAGE>

         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 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

                                       53
<PAGE>

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 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.

                                       54
<PAGE>

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 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.

                                       55
<PAGE>

                                   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,  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.

                                       56
<PAGE>

                  (d) Lessee shall at all times be Solvent.  Furthermore,  as of
the date of this  Agreement,  Lessee or its  Affiliate  agree 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 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

                                       57
<PAGE>

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 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

                                       58
<PAGE>

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.

         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

                                       59
<PAGE>

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

                                       60
<PAGE>

         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., AS TRUSTEE FOR
                                        APPLE SUITES PENNSYLVANIA BUSINESS TRUST

                                        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-1

                                LEGAL DESCRIPTION

<PAGE>

                                    EXHIBIT B

                                   WORK LETTER

         This Work Letter  describes and specifies the rights and obligations of
Apple  Suites  Inc.,  as trustee for Apple Suites  Pennsylvania  Business  Trust
("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

                                       2
<PAGE>

contracts  with the  Contractors,  Lessor  shall pay to Lessee the amount of the
invoice.  Lessee  shall 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.

                                       3
<PAGE>

         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.

         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 8th day of May, 2000.

                                   "LESSOR"

                                   APPLE SUITES INC., AS TRUSTEE FOR
                                   APPLE SUITES PENNSYLVANIA BUSINESS TRUST

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

                                   "LESSEE"

                                   APPLE SUITES MANAGEMENT, INC.

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

<PAGE>

                                  SCHEDULE 2.1

                               COMMENCEMENT DATES

(a)      Homewood Suites(R) Malvern - Malvern
         Malvern, Pennsylvania

         May 8, 2000

<PAGE>

                                 SCHEDULE 3.1(a)

                                   BASE RENTS

(a)      Homewood Suites(R) Malvern - Malvern
         Malvern, Pennsylvania

                                                     $942,375

<PAGE>

                                 SCHEDULE 3.1(b)
                            SUITE REVENUE BREAKPOINT

(a)      HOMEWOOD SUITES(R) MALVERN - MALVERN
         MALVERN, PENNSYLVANIA

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
     QUARTERS           2000           2001          2002          2003          2004
     --------           ----           ----          ----          ----          ----
<S>                   <C>           <C>           <C>           <C>           <C>
1ST QUARTER             ----         $300,219      $309,456      $323,313      $332,550

2ND QUARTER           $196,669       $600,438      $618,913      $646,625      $665,100

3RD QUARTER           $529,219       $900,656      $928,369      $969,938      $997,650

4TH QUARTER           $861,769      $1,200,875    $1,237,825    $1,293,250    $1,330,200

-----------------------------------------------------------------------------------------

<CAPTION>
-----------------------------------------------------------------------------------------
     QUARTERS           2005          2006          2007          2008           2009
     --------           ----          ----          ----          ----           ----
<S>                   <C>           <C>           <C>           <C>           <C>
1ST QUARTER           $341,700      $351,025      $360,263      $369,500       $378,738

2ND QUARTER           $683,575      $702,050      $720,525      $739,000       $757,475

3RD QUARTER          $1,025,363    $1,053,075    $1,080,788    $1,108,500     $1,136,213

4TH QUARTER          $1,367,150    $1,404,100    $1,441,050    $1,478,000     $1,514,950

-----------------------------------------------------------------------------------------
</TABLE>

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00010-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00010-of-00352.parquet"}]]