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Take 10: Contracts

November 5, 2014

Take 10: Contracts, Part 1 (basic)

1. How do you defend the planner's position that liquidated damages should be based on profit and NOT revenue when the hotel counters that they lost out on auxiliary revenues and would have anticipated/expected these additional revenues?

Liquidated damages are intended to be a reasonable approximation of a party’s loss under the contract when the other party fails to perform. In the case of a planner canceling, the calculation of losses should include only those charges for services that the group was contractually obligated to use. This would usually include guest rooms, banquet F&B and maybe some AV services or other amenities mentioned in the contract. The calculation should not include other (optional) charges, because the group was not contractually obligated to use those amenities. So golf and spa reservations should not be included at a resort unless the group had reserved tee times and agreed to pay for them in the contract.

 

2. If a hotel changes brands after the signature of a contract, are they still liable to pay commissions?

Yes. A change in brand has nothing to do with a change in commissions. Unless the hotel cancels the entire contract--which could be a breach of that contract entitling the group to cancellation damages--the hotel must honor all of the contractual terms, including payment of commissions and any concessions written into the agreement.

 

3. Hotel renovations: A hotel indicates it will be completed by February, but our event is the beginning of March. What can we indicate in the contract?

The hotel contract should include a solid construction/renovation clause obligating the property to notify you of material construction or renovations that may be underway during your event, and allowing you to cancel and receive damages if the project materially interferes with your meeting. In a situation where you already know that a project will be going on just before your event, you should first consider your risk tolerance; i.e., can you live with the uncertainty that a delay may occur that would push back the renovation to your meeting dates, and then what would you do to ensure your meeting runs smoothly? If you can’t tolerate the risk, it would be better to find another property for your event. Or if you stay, make sure you have a workable backup plan in place just in case you need to move.

 

4. How can we confirm that a hotel did not offer a lower rate to another group over our same meeting dates if the clause is in the contract? Does this discussion happen after the meeting?

The best way to monitor rates of other groups at the same property is to encourage your attendees to report better rates to your group’s planner. The planner can also help by reviewing the websites of other groups and looking for hotel rate information. The hotels monitor their rates themselves, but sometimes they accidently offer better rates to one group over another even when they shouldn’t. In that situation, the hotel can’t always be expected to lower its rates for the other group without some prodding. Rates for different groups can always be reviewed after the meeting, but usually a group only asks to look at the hotel’s records in an attrition situation. So it’s generally better for the planner to investigate this issue on her own before and during the event.

5. I am working with a union hotel for the first time. How can I learn more about how to deal with union properties? How different is the contract for a union property?

Union properties typically have a set of work rules that planners should be familiar with. These rules usually tell the planner what kinds of workers must be utilized for their event and the costs that will be involved with engaging those workers. It is essential for the planner to get a copy of those rules in advance--before signing the contract--or it may be difficult to know if labor costs can remain within your meeting budget. The contract for a union hotel is about the same as for other hotels, but a clause is often included by the hotel stating that the group is required to use union labor and to pay for all associated costs.

 

6. If a hotel is completely sold out (including all suites), can a hotel still charge attrition fees? Is this double dipping?

If your hotel contract includes a standard attrition clause with liquidated damages, then the hotel can still charge attrition even if it’s sold out on your dates. A liquidated damages clause--with pre-agreed upon damage amounts for empty rooms--does not require the hotel to credit the group for resold rooms, unless the meeting contract includes such a requirement. On the other hand, if the contract has no attrition clause, if the group misses its room block and the hotel is sold out anyway, the property cannot charge attrition, as the law adds a rebooking obligation for the hotel in that circumstance.

 

7. If there is not a quality standard in the contract and the room product has significant decreased, can concessions be negotiated after the fact?

In my opinion, a hotel contract always includes a quality standard, whether it’s written into the contract or not. If there’s nothing written and the property decreases significantly in quality, the hotel will likely feel no obligation to negotiate concessions after the fact, particularly if any quality issues weren’t brought to management’s attention before or during the meeting. Also, after the meeting is over the hotel will have little incentive to offer any discounts. It’s far better to bring issues to the attention of the general manager or director of sales as soon as they’re noticed, when the hotel is in the best position to address any deficiencies and ensure that the planner’s expectations are met.

 

8. Is there a comprehensive checklist available of all suggested clauses to include in a hotel contract?

There is no comprehensive checklist available of hotel clauses, mostly because clauses are constantly being added due to changes in the economy, new business practices and other developments. However, a good list can be found at the website for the Convention Industry Council’s APEX Contracts Panel, which can be found at www.conventionindustry.org/standardspractices/APEX/Contracts.aspx.

This APEX report was prepared by leading industry planners, suppliers and attorneys; I was pleased to participate in this effort.

 

9. Most hotels will offer ana 80 percent to 75 percent attrition amount in the attrition clause. Is this reasonable or is there more room for negotiation on this?

The amount of “permitted slippage” in an attrition clause is often the subject of negotiation, because there is no accepted standard. 75-80 percent is very generous for many properties. Each group must negotiate the proper amount for itself, possibly comparing the competing offers of two or more acceptable meeting locations.

 

10. Sometimes guests or group attendants make reservations separate from the group block (better rate), and the hotel should apply them to the block, but they don't. Is this legal?

Yes, it is legal. Absent a contract provision covering the subject, a hotel has no duty to apply rooms reserved by group guests “booking outside the block” to the group block. The best way to handle this is to negotiate into the contract a clause requiring that all rooms reserved by group guests be counted in the group block, regardless of how the reservation was made or the rate paid. There should also be a good audit clause allowing the group to check the hotel’s records after the meeting to make sure that all group guests were counted for purposes of calculating any attrition damages due.

 

Take 10: Contracts, Part 2 (advanced)

  1. How does a planner respond to a hotel that doesn't agree with the planner's more specific clause inclusions? For example, I include language that requires hotel to show final report of room pickup after event is finished to determine final attrition, but hotel says, "We don't/can't do that."

All contract provisions are subject to negotiation. If one party won’t agree to the other party’s requests, it is often helpful to ask for an explanation as to why they won’t agree, as in some situations it may be possible to overcome the objection with a modified contract provision. If an agreement can’t be reached, the requesting party must decide if it can proceed without the desired clause; if so, sign the contract without it. On the other hand, if the desired clause is necessary and the parties can’t agree, the planner should take his/her business elsewhere. This is why it’s particularly important to have alternative venues available until a contract is signed.

 

  1. I worked with a third-party planner to select a property. In the contract was a 10 percent commission for him. The relationship between this planner and my company has been discontinued. Am I still responsible for paying that commission?

It is likely that you are still liable to pay commission to the planner. You stated that you engaged the planner to select a property, and the planner performed that function. Therefore the planner is probably entitled to commission. It is important to have a written agreement between planner and client to minimize the possibility for any ambiguities about responsibility for commission payment.

 

  1. If a hotel will not agree to the industry standard percentage on rooms and F&B amount and wants 100 percent, and we sign off on that, if in the event this does cancel and we refuse to pay the 100 percent and they take us to court, would the court award the 100 percent or just make them equal for what they are out of pocket?

There is no way to predict how a court would rule in any case, particularly when all the facts aren’t known. In general, however, each party should expect to be liable for the amount it agreed to in the contract, so if your group agreed to 100 percent damages you should expect to pay that amount. That being said, if you can prove with reasonable certainty that a 100 percent damages award would be excessive, you could ask a judge to find that a lesser percentage would be more reasonable.

 

  1. Can't we just have a clause in the contract that says “Hotel will not cancel the group for the purpose of holding another meeting or event?”

Answer: Yes, you could include a contract clause stating that the hotel may not cancel for the purpose of holding another meeting or event, but this would not actually prevent a hotel from cancelling, any more than a similar provision would actually prevent a group from cancelling. Either party may still cancel; but the canceling party would owe cancellation damages if it does so. Damages would become payable even if there is no damages clause in the written contract.

 

  1. If you sign a contract and then the meeting cancels within three business days of you signing the contract due to civil unrest in a city, is there a three-day rule that applies?

I know of no “three-day rule” or anything similar imposed on meeting contracts by law, although the parties to a contract might agree to a three-day cooling off period and put an appropriate provision into their contract. Also, it would seem unusual for a contract to be signed and then canceled so quickly due to civil unrest or any other factor. Most force majeure clauses allow cancellation only for circumstances that were unanticipated when the contract is signed. But anything is possible if the parties agree.

 

  1. If a group cancels because of force majeure, who pays for the attendee's expenses (airline, etc.)?

Force majeure is intended to allow all parties to a contract to cancel or postpone performance of their obligations because it becomes impossible, illegal, or (sometimes) impractical, to do so. In the event of a force majeure occurrence, all parties are excused from performance. So any attendee expenses that cannot be reimbursed remain the responsibility of those attendees. These principles can be altered by contract, but in the absence of a contractual provision each party is responsible for its own expenses.

 

  1. If the hotel cancels, it is fair to ask the hotel to provide to the group the same amount of $$ in damages the hotel is requesting from the group?

 Generally, the parties to a meeting contract are not entitled to the same amount of damages as the other party in the event of cancellation. This is because each party’s measure of damages is different--the hotel is entitled to its lost profits on guestrooms, F&B and other services it contracted to provide, while the group is entitled to its costs related to the cancellation and rebooking at a comparable venue. On the other hand, the parties could agree by contract to pay the same amount of damages if the other party cancels, but that agreement should be accompanied by a written acknowledgement that the agreed-upon damages are not equal to the parties’ actual losses.

 

  1. To be clear, you should not be giving up concessions AND paying attrition? Usually there is a separate clause for attrition, correct? So should the attrition clause be contingent on the other? Hope this makes sense.

 That is correct. In most instances a group should not both give up concessions and pay attrition damages. The attrition damages are intended to compensate the hotel for its losses if the group fails to meet its room block obligation, so if a group pays attrition the hotel’s damages have been satisfied. Therefore no further remedy--in the form of reducing or eliminating concessions--should be required.

 

  1. Does a third-party planner have any recourse if the group chooses to change to whom the commission gets paid? Does the group have some responsibility to state why they are changing the recipient?

A third-party planner may have recourse if a group changes to whom a commission is paid, particularly after the planner begins providing services for the event. The planner is compensated for his efforts through the commission, so a change in recipient of the commission means that the planner won’t be paid by that method. In that instance the planner should pursue the group for other compensation to replace the commission payment. There is no obligation for a group to reveal why it is changing the recipient of commissions, although if the planner didn’t perform its obligations that might bear on the group’s liability for compensation.

 

  1. I was recently in a situation where a major hotel chain refused to pay me a commission unless I provided an IATA number. Any recourse? I am a third-party planner and not involved in air travel.

There is no legal requirement for a commission recipient to have an IATA number; this is a hotel policy. Unless this was disclosed to the planner in advance, the hotel should pay the commission. Your recourse is to the courts if the hotel declines to pay once you’ve sent a request for payment.

 

Bonus Question: Do you need language for third-party planners, such as Cvent, which receives a commission directly from the hotel and not the planner/group?

There should be a written agreement between the third-party planner and the group that the third-party will be compensated exclusively by the hotel. In the absence of some agreement as to how the third-party planner will be compensated, the group may be ultimately liable for payment.

 

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About the author
Joshua L. Grimes | Attorney, Grimes Law Offices, LLC

Joshua L. Grimes, Esq., of Grimes Law Offices, LLC, is a noted expert in legal issues relating to the meeting and hospitality industries. He may be reached at grimesj@grimeslaw.org or 215.529.8700. The statements in this article are general opinions offered for educational purposes, and do not constitute legal advice. Those seeking legal advice should contact a competent attorney of their choosing.