Hotel & Short-Term Rental Subchapter V in Central Florida
- Melissa A. Youngman
- 2 days ago
- 7 min read
Melissa Youngman, PA and Winter Park Estate Plans & ReOrgs represent businesses in Chapter 11 and Subchapter V cases before the United States Bankruptcy Court for the Middle District of Florida, including the Orlando, Jacksonville, Tampa, and Fort Myers divisions, with a primary practice footprint in Orange, Seminole, Osceola, Volusia, Lake, and Brevard counties.
Central Florida's hospitality sector runs on thin margins even in stable years. Hotels and short-term rental operators in the Kissimmee, Orlando, and greater Orange County market depend on a specific mix of occupancy rates and average daily rate (ADR) to cover fixed costs, franchise fees, mortgage debt service, and capital expenditure requirements. When that mix deteriorates, the financial decline can be swift and, without a clear restructuring path, permanent.
Subchapter V of the Bankruptcy Code, codified at 11 U.S.C. §§ 1181 through 1195, offers hospitality businesses a reorganization path that traditional Chapter 11 could rarely deliver at an accessible cost for smaller operators. Applying it to hotels and short-term rental properties requires attention to three issues that rarely arise in other industries: the treatment of franchise agreements under § 365, property improvement plan (PIP) obligations imposed by franchise brands, and the short-term rental regulatory environment specific to Kissimmee and Orange County.
This post is for owners of hotels, motels, and short-term rental portfolios in Central Florida who are evaluating their restructuring options and want to understand how the Subchapter V framework applies to their specific operating context.
The ADR and Occupancy Cliff: How Hospitality Debt Becomes Acute
Hotels in the Central Florida market carry a cost structure that depends on revenue per available room, itself a product of both occupancy and ADR. When either variable drops below the levels assumed at underwriting, a property that operated with acceptable cash flow can shift to a monthly net deficit within a single quarter. Franchise royalties, property insurance, debt service on the real estate and equipment, required reserve deposits, and management fees all continue at full cost regardless of room occupancy.
The result is a cliff effect familiar to any operator in the Kissimmee corridor or around Orlando International Airport. A property running adequately at sixty-eight to seventy-two percent occupancy encounters a meaningful disruption, a major nearby employer relocating, a macroeconomic shift reducing group bookings, a forced renovation, or a regulatory change affecting short-term rental income, and the monthly shortfall quickly exceeds what the owner can cover from reserves or personal funds. That is the pattern that makes Subchapter V eligibility worth examining. Under § 1182(1)(A), the current aggregate debt cap for noncontingent, liquidated secured and unsecured business debts is $3,424,000.00. Smaller hotel operators and STR portfolio owners often fall within that range.
Franchise Agreements as Executory Contracts Under § 365
A franchise agreement with a hotel brand is an executory contract under § 365 of the Bankruptcy Code. In a Subchapter V case, the debtor-in-possession must decide, within a reasonable time after filing, whether to assume or reject each executory contract, and the stakes of that decision are higher in hospitality than in most other industries.
Assuming a franchise agreement preserves the right to continue operating under the brand flag. Assumption requires curing all pre-petition monetary defaults, including unpaid royalties, marketing fund contributions, and other amounts owed to the franchisor as of the filing date. The cure obligation is a real and often substantial number. Franchise agreements also commonly contain anti-assignment provisions that require franchisor consent before the license can be transferred in a plan or a § 363 sale, and the franchisor's approval right gives it significant leverage in any negotiation.
Rejecting the franchise agreement treats it as a pre-petition breach, releases the debtor from ongoing royalty obligations, and frees the property from brand standards. For a hotel whose ADR, occupancy, and online distribution depend on a specific flag, rejection is a consequential choice. The debtor loses the brand, the reservation system access, the loyalty program traffic, and, in many cases, the signage it has built its local identity around. The choice between assumption and rejection is among the first substantive strategic decisions in a hospitality Subchapter V case, and it must be made with a realistic assessment of the property's standalone revenue capacity.
Property Improvement Plans: When a PIP Becomes a Restructuring Trigger
Most hotel franchise agreements impose a property improvement plan requirement: a franchisor-mandated renovation program to bring the property to current brand standards. PIPs are standard in major flag agreements across the upper-midscale, upscale, and upper-upscale segments. Required capital expenditures under a PIP can run from several hundred thousand dollars to several million, depending on the property's age, condition, and brand tier.
For a hotel operator in financial distress, a PIP obligation falling due during a period of suppressed cash flow can itself accelerate insolvency. The operator cannot fund the PIP, the franchisor threatens brand termination, and the property loses both its flag and its ability to service the underlying debt. Subchapter V provides a structured mechanism to address that dynamic.
Treatment of a PIP obligation in the case depends on its legal character under the franchise agreement. If the PIP obligation is a liquidated, contingent claim arising from the franchise agreement, it participates in the claims process. If it constitutes a cure amount the debtor must pay to assume the executory contract, it must be addressed as part of the assumption negotiation. In practice, debtors often negotiate a PIP deferral or a modification of the improvement schedule directly with the franchisor as a condition of assumption. Franchisors have economic incentives to cooperate: a healthy franchisee continuing to pay royalties is preferable to a rejected agreement, a distressed independent operator, and a flag-termination proceeding. The Subchapter V framework creates the protected time and procedural structure in which that negotiation can occur productively.
Short-Term Rental Operators and Subchapter V Eligibility
Short-term rental operators presenting properties through platforms such as Airbnb or VRBO face their own eligibility analysis under Subchapter V. Section 1182(1) requires the debtor to be a person engaged in commercial or business activities. An individual who rents a single property incidentally and whose primary debts are personal consumer obligations will not qualify. A debtor who operates a portfolio of short-term rental properties as a primary or material business activity, carries business-purpose financing, and holds the properties in an entity structure is a much stronger candidate.
The $3,424,000.00 aggregate debt cap at § 1182(1)(A) fits many STR portfolio operators. A Central Florida operator with three or four investment properties financed through purchase-money mortgages, a working capital line, and furnishing or equipment debt can often fall within the cap on noncontingent, liquidated business debts. The analysis must account for the 50-percent business-activity requirement: at least half of the debtor's aggregate noncontingent, liquidated debts must have arisen from commercial or business activities. For a portfolio STR operator, investment-purpose mortgages generally qualify; consumer credit card balances or student loans generally do not count toward the business-activity side of the ledger.
Single-asset real estate debtors are excluded from Subchapter V under § 1182(1)(B). A single-property STR owner whose only significant asset and only material obligation relate to that one property may face a single-asset real estate argument from the U.S. Trustee. The definition in § 101(51B) and the case law applying it are fact-specific. Multi-property STR operators generally fall outside the single-asset real estate definition and do not raise the same concern.
The STR Regulatory Landscape in Kissimmee and Orange County
Short-term rental regulation in Central Florida is not uniform across jurisdictions. Osceola County and the Kissimmee area have historically permitted short-term rental activity more broadly than many Florida jurisdictions, a policy reflecting the region's dependence on tourism accommodation around the theme park corridor. Orange County has implemented structured licensing, inspection, and registration requirements for short-term rentals that add an operating compliance layer absent in some neighboring areas.
An STR operator considering Subchapter V must assess its regulatory standing as part of any plan feasibility analysis. A license that has been suspended or that is subject to a pending revocation proceeding is not a reliable revenue source against which projected disposable income can be calculated. A plan projecting recovery based on continued STR operations must be grounded in the actual regulatory status of each property's permit, not on projections that assume continued operation when that operation is not legally confirmed.
For operators in the Kissimmee area, platform-specific requirements imposed by Airbnb, Vrbo, and similar services add another layer. Complaints, listing suspensions, or adverse ratings that reduce booking volume are operational facts that must be disclosed accurately in the projections a Subchapter V debtor submits at confirmation. Section 1129(a)(11), incorporated into Subchapter V through § 1191, requires the court to find the plan feasible. A plan that overstates projected revenue to obtain confirmation sets up a post-confirmation default, not a successful reorganization.
Hospitality Businesses in Central Florida's Tourism Corridor
The concentration of hotel and short-term rental inventory along the U.S. 192 corridor in Kissimmee, the International Drive area in Orlando, and the communities surrounding the major theme parks creates an operating environment with specific revenue drivers and specific vulnerabilities. Revenue projections in a Subchapter V plan for a Kissimmee hotel or an Osceola County STR portfolio must be calibrated to the sub-market, accounting for seasonal ADR variation, competitive set dynamics, and the regulatory environment described above, rather than to national hospitality averages.
Melissa Youngman, PA d/b/a Winter Park Estate Plans & ReOrgs represents businesses in Chapter 11 and Subchapter V cases throughout the Middle District of Florida. For hospitality and tourism operators in the Kissimmee corridor evaluating reorganization options, see our hub page on Kissimmee tourism business reorganization.
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Melissa Youngman is licensed to practice law in the State of Florida and regularly represents debtors, creditors, and other parties in interest in the United States Bankruptcy Court for the Middle District of Florida. This blog addresses issues under federal bankruptcy law and Florida state law; the outcome of any specific matter depends on its particular facts and on statutes, rules, and case law that may have changed after the date of publication.
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