Commitments and Contingencies

Litigation

The nature of the operations of the Company's hotels exposes those hotels, the Company and the Operating Partnership to the risk of claims and litigation in the normal course of their business. An affiliate of the Company is currently a defendant, along with IHM, in a class action lawsuit pending in the San Diego County Superior Court. Two class action lawsuits were filed on April 25, 2012 and February 27, 2013, respectively, and were subsequently consolidated on November 8, 2013 under the title Martinez et al v. Island Hospitality Management, Inc., et al. Case No. 37-2012-00096221-CU-OE-CTL. The class action relates to fifteen hotels operated by IHM in the state of California and owned by affiliates of the Company, the NewINK JV, the Innkeepers JV, and/or certain third parties. Both complaints in the now consolidated lawsuit allege various wage and hour law violations including unpaid off-the-clock work, failure to provide meal breaks and failure to provide rest breaks. The plaintiffs seek injunctive relief, money damages, penalties, and interest. We are defending our case vigorously. As of December 31, 2015, included in accounts payable and expenses is $171, which represents an estimate of the Company's exposure to the litigation and is also estimated as the maximum possible loss that the Company may incur.

Hotel Ground Rent

The Courtyard Altoona hotel is subject to a ground lease with an expiration date of April 30, 2029 with an extension option by the Company of up to 12 additional terms of five years each. Monthly payments are determined by the quarterly average room occupancy of the hotel. Rent is equal to approximately $8 per month when monthly occupancy is less than 85% and can increase up to approximately $20 per month if occupancy is 100%, with minimum rent increased on an annual basis by two and one-half percent (2.5%).

The Residence Inn San Diego Gaslamp hotel is subject to a ground lease with an expiration of January 31, 2065 with an extension option of up to 3 additional terms of ten years each. Monthly payments are currently $40 per month and increase 10% every 5 years. The hotel is subject to supplemental rent payments annually calculated as 5% of gross revenues during the applicable lease year, minus 12 times the monthly base rent scheduled for the lease year.

At the Residence Inn New Rochelle hotel is subject to an air rights lease and garage lease that each expires on December 1, 2104. The lease agreements with the City of New Rochelle cover the space above the parking garage that is occupied by the hotel as well as 128 parking spaces in a parking garage that is attached to the hotel. The annual base rent for the garage lease is the hotel’s proportionate share of the city’s adopted budget for the operations, management and maintenance of the garage and established reserves to fund the cost of capital repairs. Aggregate rent for 2015 under these leases amounted to approximately $123.

The Hilton Garden Inn Marina del Rey hotel is subject to a ground lease with an expiration of December 31, 2067. Minimum monthly payments are currently $43 per month and a percentage rent payment less the minimum rent is due in arrears equal to 5% to 25% of gross income based on the type of income.

The Residence Inn Il Lugano hotel land is owned by the Company and is the lessee to an adjacent dock is subject to a renewable submerged land lease with an expiration of April 1, 2016. Renewal of the submerged land lease is at the sole option of the lessor. In the event the Company is in full compliance with the terms of the lease, the lessor is required to begin the renewal process. The annual lease payment is $2.

The Company entered into a new corporate office lease in September 2015. The lease is for a term of 11 years and includes a 12-month rent abatement period and certain tenant improvement allowances. The Company has a renewal option of up to 2 successive terms of five years each. The Company will share the space with related parties and will be reimbursed for the pro-rata share of rentable space occupied by the related parties.

Future minimum rental payments under the terms of all non-cancellable operating ground leases and the office lease under which the Company is the lessee are expensed on a straight-line basis regardless of when payments are due. The following is a schedule of the minimum future payments required under the ground, air rights, submerged, garage leases and office lease as of December 31, 2015, and for each of the next four calendar years and thereafter (in thousands):



	Other Leases⁽¹⁾		Office Lease
	Amount
2016	$	1,213	$	231
2017	1,215		745
2018	1,217		772
2019	1,220		792
2020	1,267		812
Thereafter	70,727		4,995
Total	$	76,859	$	8,347

Management Agreements

The management agreements with Concord have an initial ten-year term that expire on February 28, 2017 and will renew automatically for successive one-year terms unless terminated by the TRS lessee or the manager by written notice to the other party no later than 90 days prior to the then current term’s expiration date. The management agreements may be terminated for cause, including the failure of the managed hotel operating performance to meet specified levels. If the Company were to terminate the management agreements during the first nine years of the initial term other than for breach or default by the manager, the Company would be responsible for paying termination fees to the manager.

The management agreements with IHM have an initial term of five years and automatically renew for two five-year periods unless IHM provides written notice to us no later than 90 days prior to the then current term's expiration date of its intent not to renew. The IHM management agreements provide for early termination at the Company’s option upon sale of any IHM-managed hotel for no termination fee, with six months advance notice. The IHM management agreements may be terminated for cause, including the failure of the managed hotel to meet specified performance levels. Base management fees are calculated as a percentage of the hotel's gross room revenue. If certain financial thresholds are met or exceeded, an incentive management fee is calculated as 10% of the hotel's net operating income less fixed costs, base management fees and a specified return threshold. The incentive management fee is capped at 1% of gross hotel revenues for the applicable calculation.

As of December 31, 2015, Terms of the Company's management agreements are (dollars are not in thousands):



Property	Management Company	Base Management Fee		Monthly Accounting Fee		Monthly Revenue Management Fee		Incentive Management Fee Cap
Courtyard Altoona	Concord	4.0	%	$	1,211	$	—	—	%
Springhill Suites Washington	Concord	4.0	%	991		—		—	%
Homewood Suites by Hilton Boston-Billerica/ Bedford/ Burlington	IHM	2.0	%	1,000		550		1.0	%
Homewood Suites by Hilton Minneapolis-Mall of America	IHM	2.0	%	1,000		550		1.0	%
Homewood Suites by Hilton Nashville-Brentwood	IHM	2.0	%	1,000		550		1.0	%
Homewood Suites by Hilton Dallas-Market Center	IHM	2.0	%	1,000		550		1.0	%
Homewood Suites by Hilton Hartford-Farmington	IHM	2.0	%	1,000		550		1.0	%
Homewood Suites by Hilton Orlando-Maitland	IHM	2.0	%	1,000		550		1.0	%
Homewood Suites by Hilton Carlsbad (North San Diego County)	IHM	3.0	%	1,000		—		1.0	%
Hampton Inn & Suites Houston-Medical Center	IHM	3.0	%	1,000		—		1.0	%
Residence Inn Long Island Holtsville	IHM	3.0	%	1,000		—		1.0	%
Residence Inn White Plains	IHM	3.0	%	1,000		—		1.0	%
Residence Inn New Rochelle	IHM	3.0	%	1,000		—		1.0	%
Residence Inn Garden Grove	IHM	2.5	%	1,000		—		1.0	%
Residence Inn Mission Valley	IHM	2.5	%	1,000		—		1.0	%
Homewood Suites by Hilton San Antonio River Walk	IHM	2.5	%	1,000		—		1.0	%
Residence Inn Washington DC	IHM	2.5	%	1,000		—		1.0	%
Residence Inn Tysons Corner	IHM	2.5	%	1,000		—		1.0	%
Hampton Inn Portland Downtown	IHM	3.0	%	1,000		550		1.0	%
Courtyard Houston	IHM	3.0	%	1,000		550		1.0	%
Hyatt Place Pittsburgh North Shore	IHM	3.0	%	1,500		1,000		1.0	%
Hampton Inn Exeter	IHM	3.0	%	1,200		1,000		1.0	%
Hilton Garden Inn Denver Tech	IHM	3.0	%	1,500		1,000		1.0	%
Residence Inn Bellevue	IHM	3.0	%	1,200		1,000		1.0	%
Springhill Suites Savannah	IHM	3.0	%	1,200		1,000		1.0	%
Residence Inn Silicon Valley I	IHM	3.0	%	1,200		1,000		1.0	%
Residence Inn Silicon Valley II	IHM	3.0	%	1,200		1,000		1.0	%
Residence Inn San Mateo	IHM	3.0	%	1,200		1,000		1.0	%
Residence Inn Mountain View	IHM	3.0	%	1,200		1,000		1.0	%
Hyatt Place Cherry Creek	IHM	3.0	%	1,500		1,000		1.0	%
Courtyard Addison	IHM	3.0	%	1,500		1,000		1.0	%
Courtyard West University Houston	IHM	3.0	%	1,500		1,000		1.0	%
Residence Inn West University Houston	IHM	3.0	%	1,200		1,000		1.0	%
Hilton Garden Inn Burlington	IHM	3.0	%	1,500		1,000		1.0	%
Residence Inn San Diego Gaslamp	IHM	3.0	%	1,500		1,000		1.0	%
Hilton Garden Inn Marina del Rey	IHM	3.0	%	1,500		1,000		1.0	%
Residence Inn Dedham	IHM	3.0	%	1,200		1,000		1.0	%
Residence Inn Il Lugano	IHM	3.0	%	1,500		1,000		1.0	%

Management fees totaled approximately $8,742, $6,096 and $3,752, respectively, for the years ended December 31, 2015, 2014 and 2013. Incentive management fees paid to IHM for the years ended years ended December 31, 2015, 2014 and 2013 were $278, $161 and $63, respectively. There have been no incentive management fees paid to Concord.

Franchise Agreements

The Company’s TRS Lessees have entered into hotel franchise agreements with Promus Hotels, Inc., a subsidiary of Hilton, Hampton Inns Franchise, LLC, Marriott International, Inc., Hyatt Hotels, LLC and Hilton Garden Inns Franchise, LLC.

Terms of the Company's franchise agreements are as of December 31, 2015:



Property	Franchise/Royalty Fee		Marketing/Program Fee		Expiration
Homewood Suites by Hilton Boston-Billerica/ Bedford/ Burlington	4.0	%	4.0	%	2025
Homewood Suites by Hilton Minneapolis-Mall of America	4.0	%	4.0	%	2025
Homewood Suites by Hilton Nashville-Brentwood	4.0	%	4.0	%	2025
Homewood Suites by Hilton Dallas-Market Center	4.0	%	4.0	%	2025
Homewood Suites by Hilton Hartford-Farmington	4.0	%	4.0	%	2025
Homewood Suites by Hilton Orlando-Maitland	4.0	%	4.0	%	2025
Homewood Suites by Hilton Carlsbad (North San Diego County)	4.0	%	4.0	%	2028
Hampton Inn & Suites Houston-Medical Center	5.0	%	4.0	%	2020
Courtyard Altoona	5.5	%	2.0	%	2030
Springhill Suites Washington	5.0	%	2.5	%	2030
Residence Inn Long Island Holtsville	5.5	%	2.5	%	2025
Residence Inn White Plains	5.5	%	2.5	%	2030
Residence Inn New Rochelle	5.5	%	2.5	%	2030
Residence Inn Garden Grove	5.0	%	2.5	%	2031
Residence Inn Mission Valley	5.0	%	2.5	%	2031
Homewood Suites by Hilton San Antonio River Walk	4.0	%	4.0	%	2026
Residence Inn Washington DC	5.5	%	2.5	%	2033
Residence Inn Tysons Corner	5.0	%	2.5	%	2031
Hampton Inn Portland Downtown	6.0	%	4.0	%	2032
Courtyard Houston	5.5	%	2.0	%	2030
Hyatt Place Pittsburgh North Shore	5.0	%	3.5	%	2030
Hampton Inn Exeter	6.0	%	4.0	%	2031
Hilton Garden Inn Denver Tech	5.5	%	4.3	%	2028
Residence Inn Bellevue	5.5	%	2.5	%	2033
Springhill Suites Savannah	5.0	%	2.5	%	2033
Residence Inn Silicon Valley I	5.5	%	2.5	%	2029
Residence Inn Silicon Valley II	5.5	%	2.5	%	2029
Residence Inn San Mateo	5.5	%	2.5	%	2029
Residence Inn Mountain View	5.5	%	2.5	%	2029
Hyatt Place Cherry Creek	3% to 5.0%		3.5	%	2034
Courtyard Addison	5.5	%	2.0	%	2029
Courtyard West University Houston	5.5	%	2.0	%	2029
Residence Inn West University Houston	6.0	%	2.0	%	2024
Hilton Garden Inn Burlington	5.5	%	4.3	%	2029
Residence Inn San Diego Gaslamp	6.0	%	2.5	%	2035
Hilton Garden Inn Marina del Rey	3% to 5.5%		4.3	%	2030
Residence Inn Dedham	6.0	%	2.5	%	2030
Residence Inn Il Lugano	3% to 6.0%		2.5	%	2045

Franchise and marketing/program fees totaled approximately $21,240, $15,110 and $9,394, respectively, for the years ended December 31, 2015, 2014 and 2013.