Here's an example of a typical cancellation clause, and some expert advice on what to do if some of this language creeps into your next contract.
CLAUSE: Cancellation Policy
“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% of anticipated room revenue |
| 90-179 days prior to arrival | 50% of anticipated room revenue |
| 30-89 days prior to arrival | 60% of anticipated room revenue |
| Less than 30 days prior to arrival | 75% 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% charge of anticipated rooms, food and beverage, and function space revenue without respect to the date of cancellation.”
EFFECT: Excessive Penalties
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 in order 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 contracts. 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, they may be bound by this contract language unless they choose 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 out before signing the contract than having to fight it after the fact.
Tyra W. Hilliard, Esq., (tyra@sumnerassociates.net) is an attorney at Sumner & Associates, P.C., Suwanee, Ga., a law firm specializing in associations and the meetings industry.
More Clause and Effect Columns:
Clause and Effect: Attrition
Clause and Effect: Cancellation Policy
Clause and Effect: War and Force Majeure
Clause and Effect: Indemnification and Hold Harmless
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Clause and Effect: Function Room Assignments
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Clause and Effect: Conflicting Groups
Clause and Effect: Lowest Rate Clauses
Clause and Effect: Food Donations
Americans with Disabilities Act
Clause and Effect: Early Departure Fees
Clause and Effect: Complimentary Room Nights
Clause and Effect: Hotel’s Right to Eject Troublemakers
Clause and Effect: Hotel’s Right to Modify Meeting Space
Clause and Effect: Marriott and the IATA Requirement
Clause and Effect: Establishing Credit
Clause and Effect: Putting Group Charges on the Master Bill
