Glossary

Recognition Agreement (Hotel Manager/Franchisor Non-Disturbance)

Also known as: Non-Disturbance and Attornment Agreement (Hotel Manager), Tri-Party Recognition Agreement

A tri-party agreement among lender, owner, and hotel manager or franchisor establishing that the management or franchise agreement will survive a foreclosure or deed-in-lieu, and giving the lender defined step-in, cure, and replacement rights with respect to the operating agreement.

Because a hotel's franchise affiliation and management relationship are often more valuable to ongoing cash flow than the physical improvements alone, lenders require recognition agreements so that enforcing on the loan does not automatically terminate the operating agreements the collateral depends on: the manager or franchisor agrees to recognize the lender, or its foreclosure-sale successor, as the new counterparty without a fresh negotiation, provided outstanding monetary defaults are cured. In exchange, the agreement typically preserves the manager's or franchisor's own termination and performance-test rights against the lender-as-successor-owner, so a lender that forecloses does not inherit an indefinite, unterminable contract; balancing lender step-in rights against preserved operator rights is one of the more technical, heavily lawyered aspects of closing a hotel loan, particularly in securitized execution where the agreement must also satisfy rating-agency and servicer requirements.