Your annual meeting came off without a hitch. Attendance was lower than expected, but all in all, the meeting was a success. Shortly after the event, a letter arrives from the hotel claiming your group owes room attrition damages. However, your contract with the hotel does not include an attrition clause. Does your group have to pay?

Planners reason that, absent an attrition clause, hotels have no right to claim room attrition penalties. Hotels argue that that they are entitled to recoup lost room revenue from groups that fail to fill their block. As it turns out, both sides may be right.

One reason for the seeming contradiction is confusion over terminology. An attrition clause is a specific provision that spells out a formula for calculating charges if the full room block is not used. Attrition damages are those losses that a hotel can show have resulted from a group's failure to fill its room block. Provided that a hotel can show that such failure was a breach of the contract, contract law allows it to seek damages for the losses.

Clause or No Clause Under a typical attrition clause, a group agrees to compensate the hotel if it fails to fill a certain (negotiable) percentage of its block, say 80 percent. The clause also usually provides a formula to calculate that compensation, such as the convention room rate multiplied by the number of unused rooms. By definition, such clauses require both parties' agreement. Thus, if an attrition clause is not in the contract, the hotel cannot create one on its own and unilaterally impose a formula for calculating losses.

The absence of an attrition clause does not mean, however, that the hotel has no remedy when a group fails to fill its block. The hotel is entitled to recover its lost revenue if it can prove that the failure to fill the block was a breach of contract.

As recently as five years ago, it was common for hotels to set aside room blocks without any corresponding commitment from the group, and the group typically did not assume the risk of a lower than expected turnout. Over the past several years, however, it has become more common for hotels to require groups to guarantee use of their room block.

In these cases, failure to fill the block could be construed as a breach of contract, and the hotel would have a claim for its lost room revenue. And that claim can be made whether or not the parties have agreed to a formula to calculate those damages.

Better Than Nothing All things considered, an attrition clause can be a good thing for both parties. For planners, such clauses can provide certainty and avoid liability for relatively minor room block shortfalls. For hotels, the attrition clause allows them to avoid having to prove either breach of contract or the damages resulting from the breach. They also avoid the obligation to mitigate their damages by reselling unused rooms, and can avoid legal restrictions on recovering lost profits and indirect damages.

The attrition debate surely will continue. It is important to remember, however, that an attrition clause cannot be read into a contract, but its absence does not necessarily relieve a group from liability.