With increased demand for hotels paired with limited supply comes the possibility of hotels replacing group business booked when economic times were tough with lucrative new corporate business. These business decisions by hotels are now playing out across the meetings industry.
It’s not personal; it’s just business. But when that decision means that the contract for the group meeting will be canceled, what are the group’s legal rights to recover damages?
The failure by the hotel to provide sleeping rooms and function space as stated constitutes a breach of contract. As such, groups are entitled to recover direct damages from the hotel incurred as a result of the cancellation.
In other words, the hotel would be responsible for the group’s “shopping costs” to find a new location for their meeting. That would include staff time to research alternate venues, travel costs for site inspection, room rate differentials (e.g., room rate at contracted hotel was $150 and room rate at alternate hotel is $175), food and beverage cost differentials, and costs associated with notifying attendees of the change in venue.
The group is required to mitigate or minimize its damages in light of the hotel’s breach which, in the case of a hotel cancellation, requires the group to secure an alternate venue. That can mean staying in the same location if there are options (even if the options are of higher quality than the original hotel) or moving the meeting to another city.
While the group would be entitled to direct damages, having strong language in the hotel contract that addresses cancellations by the hotel will put the group in a better position not only to recover direct damages but to recover attorney’s fees and indirect damages as well. Indirect damages include losing a sponsor because of a change in venue.
Following is a sample Cancellation by Hotel provision to include in a hotel contract:
“Cancellation by Hotel: In the event of a cancellation of this Agreement by the Hotel not otherwise permitted under this Agreement, the Hotel shall pay Group for all direct, indirect and consequential damages, expenses, attorney’s fees, and costs incurred by Group on account of such cancellation including, but not limited to, staff time and travel expenses to secure an alternate location for the Event, incremental room rate and air fare differential, function space rental, and air fare differences, and long distance telephone, postage and printing costs.”
Post-Cancellation Strategies
What should groups do if a hotel cancels on them? First, the group should notify the hotel in writing that in light of the hotel’s inability to provide rooms and space as contract, the hotel is in breach of the contracted. The group should assert that it is entitled to damages as a result (and reference any “Cancellation by Hotel” provision included in the contract). The group should notify the hotel that it is researching alternate venues (which it should do right away) for its meeting and that when it secures an alternate venue, it will notify the hotel of its damages and seek payment of such damages from the hotel.
While groups hope they never have to face a Cancellation by Hotel situation, including strong language in the hotel contract is a best practice and an example of hoping for the best but planning for the worst.
