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IaaS is commonly offered by Cloud vendors where VMs can be created and run on cloud resources. The resource allocation for each VM is defined by the user and the VM is created on a physical machine where ample resources exist to support the VMs operation at the maximum expected load. There are a number of opportunities for improvement when allocating host resources to VMs. VM-resident applications are often n-tier, with different VMs responsible for parts of the distributed application. The network proximity to the user may be an issue for some applications. Resource allocation to VMs should also be such that, rather than a user over-provisioning the VM, the VMs minimal operational requirements are specified so that the VM can be resource-throttled at times of heavy load. This paper presents a system called Innkeeper, a three-tiered distributed approach which aims to dynamically allocate resources to VMs in a way that ensures SLA compliance, with consideration given to the network conditions between related VMs. Initial experiments show that the InnKeeper framework provides a means of real-time, SLA-compliant allocation of distributed cloud resources.