The Clause: The Hotel will allow Group 10 percent room block shrinkage without any liquidated damage payment. For shrinkage over and above this allowance, the Hotel will require payment from Group for each unused room night at the confirmed group average rate plus applicable tax for the committed room block. Such charge will be added to and payable as part of the Master Account.
What You Should Know: There are several problems with this provision. The calculation of attrition could be subject to different interpretations; for example, does the group owe damages up to 90 percent of the block or up to 100 percent of the block?
This clause also requires the group to pay 100 percent of the room rate for each unused room. The law of damages says that the injured party should be able to recoup lost profits, not lost revenues — if the group pays 100 percent of the room rate for an unused room, the hotel actually makes more money on that room than if the group had used the room. The hotel's expenses are less for an empty room than for an occupied room, and the room rate is set based on expenses plus profit for an occupied room. The meeting planner should negotiate to reduce the damages to a level corresponding to lost profits.
Thespecifies that attrition damages include tax. Some states do not require collection of sales tax on contract damages, so unless the law requires it, the meeting planner should not agree to pay it. If it is required by the state that the hotel is in, ask the hotel to provide proof that tax on damages is required.
The last sentence gives the hotel the right to charge attrition damages as part of the master account. Because attrition damages are often disputed, they should be billed separately, and the parties should agree in writing that no interest accrues until 30 days after any dispute has been resolved.
There is no mitigation or “resell” language in this provision. The group should add language providing for a credit against attrition damages for any sleeping rooms resold by the hotel.
- CONSTRUCTION, RENOVATIONS, OR REMODELING
The Clause: “Group acknowledges that Hotel may from time to time be under renovation, expansion, or remodeling. Group acknowledges that the construction stemming from renovation, remodeling, or expansion of the Hotel shall not be deemed a breach of contract by Hotel.”
What You Should Know: This is a dangerous clause because it attempts to absolve the hotel of liability regardless of the amount of construction or renovation undertaken by the Hotel during the group's meeting dates. If a hotel is only refinishing floors in one part of the building, this may or may not be a problem for the group. However, if the hotel has gutted the ballroom booked by the meeting planner and has no comparable space to offer, there certainly may be a breach of contract by the hotel!
A good construction or remodeling clause should specify that the hotel will inform the group in writing of any renovation, remodeling, or construction planned over the group's meeting dates. If a contract is signed several years out, the hotel may not know of remodeling plans at the time of contracting. In this case, the contract should specify that the hotel will inform the group of any planned construction over the group's meeting dates as soon as the hotel is aware of the plans, but in no event fewer than six months out. This gives the group time to find alternate meeting space if the hotel will be undergoing major renovations that will disrupt the meeting.
If the hotel knows that it will be under construction during the meeting dates but insists that it will not disrupt the group's meeting, ask the hotel to put it in writing. If the construction does disrupt the group because of noise, dust, or unavailability of meeting space, damages may be owed to the group from the hotel.
The Clause: The parties' performance under this agreement is subject to acts of God, war (declared or undeclared), government regulation, terrorism, disaster, strikes, civil disorder, curtailment of transportation facilities, or any other emergency beyond the parties' control, making it impossible, illegal, or commercially impracticable, or which materially affects a party's ability to perform its obligations under this agreement in whole or in part. Either party may terminate this agreement without liability for any one or more of such reasons upon written notice to the other party within ten (10) days of such occurrence or receipt of notice of any of the above occurrences.
What You Should Know: Congress did not officially declare war on terrorism, but it sure looks as if we have gone to war in Afghanistan. Given the situation, would this war be a valid reason for excusing the performance of a contract? It depends on whether the war truly amounts to a force majeure, or a force beyond the control of the party, that directly affects performance of the contract adversely.
To terminate a contract without liability because of a force majeure, the relationship between the force majeure and the inability to perform a contract has to be direct and immediate. Air travel suspended by the president, making it impossible for attendees to fly in to a meeting, would be a force majeure. People's continuing fear of flying probably would not qualify as a force majeure.
A conflict between the United States and a foreign entity outside our borders certainly has an effect on our business climate, but it does not necessarily render performance of a meeting contract illegal, impossible, or commercially impracticable by either party. The burden is on the party claiming force majeure to prove that the war had a direct adverse effect on its ability to perform the contract as anticipated. The best protection for a meeting planner is clear and specific contract language that anticipates events and defines its terms.
- CANCELLATION POLICY
The Clause: If the Group cancels this contract, the Group's liability for liquidated damages will be as follows: (Notice of Cancellation Received - Liquidated damages)
- More than 180 days prior to arrival — 40 percent of anticipated room revenue
- 90-179 days prior to arrival — 50 percent of anticipated room revenue
- 30-89 days prior to arrival — 60 percent of anticipated room revenue
- Fewer than 30 days prior to arrival — 75 percent of anticipated room revenue
Liquidated damages will be offset by any resold rooms. Any cancellation for the sole purpose of utilizing another facility and/or city will result in 100 percent charge of anticipated rooms, food and beverage, and function space revenue without respect to the date of cancellation.
What You Should Know: This cancellation policy begs us to look at the difference between “liquidated damages” and “penalties.” Liquidated damages are an assessment of the loss or damages a party is likely to incur, in this case, if the contract is canceled. In the last paragraph, the hotel is trying to impose a penalty on the group if the group cancels to move the meeting to another property. This penalty is above and beyond what the group would pay if it canceled for some other reason, and presumably is higher than what the hotel believes its actual loss or damage would be (because the hotel is willing to accept 75 percent of anticipated room revenue for last-minute cancellation of sleeping rooms).
The law does not enforce penalties in. Whether the group cancels in good faith, bad faith, or for no given reason at all, the cancellation damages should be the same — motive is not a valid reason for increasing damages. Unfortunately, if the group signs this contract, it may be bound by this contract language unless it chooses to hire a lawyer to argue that the damages amount in the last paragraph is so much greater than the anticipated actual damages that the contract language should not be enforced and damages should only be based on the sliding scale, regardless of motive for cancellation. Needless to say, it is much easier to strike the offending language before signing the contract than to fight it after the fact.
- OVERBOOKING (aka A “WALK” CLAUSE)
The Clause: Hotel will not overbook sleeping rooms during the meeting dates set forth in this contract. In the event Hotel deems it necessary to send an attendee to another hotel due to overbooking or a decrease in inventory, Hotel will consult with Group's on-site contact prior to walking any Group attendee to another hotel. Further, Hotel agrees that it will provide for each “walked” attendee:
A comparable or better room within a five-mile radius of the Hotel at no cost to the attendee or to Group;
Bring the attendee, at the attendee's discretion, back to the Hotel at the earliest possible date;
Advance cash cab fare to the attendee sufficient to cover one roundtrip fare to and from the hotel where the attendee will be staying for each day of the meeting that the attendee involuntarily resides at an alternate hotel;
Reimburse two long-distance telephone calls of no more than five minutes duration for each relocated attendee;
Keep the walked attendee's name on a list for referral of phone calls to the guest's new hotel.
In the event that Hotel overbooks and any Group attendees are walked to another hotel, Hotel will credit the number of overbooked rooms to Group's pick-up for purposes of calculating attrition.
What You Should Know: In an effort to maximize their revenues, hotels regularly overbook, or sell more hotel rooms than they have for a given night. This concept of “yield management” is based on sound business principles. Principled or not, this is no comfort to the meeting planner whose attendees are “walked” to another hotel, in spite of the group's contract for a certain number of rooms at the hotel over meeting dates.
Many hotel contracts do not address the issue of overbooking at all. If no clause is present in the contract, the meeting planner should add one. Onetactic is to specify in the contract that the hotel will not overbook over the meeting dates and that, if it does, it will pay the group a set amount of money per room for any group room that it walks. The hotel may still overbook and walk guests, but it is likely to walk attendees from other groups (or transient guests) before it walks your attendees.
An alternate plan is to add a clause to the contract that explains what reparations the hotel will offer to a group or group attendee if the hotel does overbook for one or more nights during contracted-for meeting dates and has to walk a group guest. Such a clause should address the following hotel responsibilities:
- Consulting with the Group's on-site contact to prioritize Group attendees that are walked (e.g., walk staff, but make sure VIPs are not walked).
- Making sure Hotel maintains the name of any walked guest on a special list so that anyone who calls for the walked guest can be referred to the guest's new hotel.
- Providing or reimbursing transportation for the attendee between the original hotel and the new hotel during the meeting dates.
- Providing one or more long-distance telephone calls so that the attendee can inform family and/or office of the change in accommodations.
Perhaps most importantly, be sure that any walked rooms are credited to the group's pick-up for purposes of calculating attrition damages.
Tyra W. Hilliard, Esq., is a lawyer with Sumner & Associates, P.C., an Atlanta-area law firm that provides consulting and legal services to associations and meeting industry professionals. Hilliard also holds a master's degree in tourism from The George Washington University, Washington, D.C.
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Clause and Effect: Attrition