We all have developed a new appreciation of the importance of force majeure provisions in hotel and convention center contracts.
Essentially, a force majeure or termination provision addresses the conditions under which a party may terminate an agreement without liability. In the wake of the September 11 terrorist attacks, it has become obvious that some of these provisions are better than others. Many are written in a way that mainly protects the hotel or convention center. The language focuses on events that make it "illegal or impossible" for the hotel or facility to "provide facilities or services." Such provisions are unlikely to allow a group to cancel its meeting and terminate its agreement without penalty because, for example, attendees are unwilling or unable to travel. A better force majeure provision would state (emphasis added):
"The performance of the agreement by either party is subject to acts of God, war, terrorism, government regulations, disaster, fire, strikes, civil disorder, curtailment of transportation facilities, or other similar cause beyond the control of the parties making it inadvisable, illegal, or impossible to hold the meeting or provide the facility. This Agreement may be terminated without penalty for any one or more of such reasons by written notice from one party to the other."
Facing Attrition if You Don't Cancel
Even with strong contracts that make it possible to cancel without penalty, many groups are choosing go ahead with their meetings planned for the weeks and months following September 11. Many groups felt that need to go on, and have.
Deciding to press on, however, does not necessarily mean that attendees will fill the room block. Most hotel contracts contain attrition clauses that impose fees on groups that fail to fill all or a set percentage of their sleeping room and, in many cases, food and beverage commitments. Thus, groups deciding not to cancel are faced with a substantial likelihood of attrition penalties. As has been widely reported, many hotel chains have liberally relaxed or waived cancellation and attrition provisions. However, not all have, and some grace periods are longer than others.
Meeting planners face a bizarre Catch-22: Terminate a meeting on the basis of a force majeure provision and leave the hotel empty and without recompense. Or, go ahead with the meeting, do the best to fill the room block, and run the risk of having to pay attrition fees. Faced with this dilemma, many groups are working with hotels to proceed with meetings but with a written agreement to waive attrition fees. However, not all hotels have been willing to revise the contract after the fact.
With that in mind, future contracts should be written with language that links attrition and force majeure events, and automatically voids (or substantially modifies) the attrition provision if a force majeure event occurs. With such language, a group could make a business decision to proceed with a meeting with the clear understanding that there would not be an attrition charge, or that such charges would be calculated on a substantially modified basis. Such an approach seems reasonably fair to all.
More to Think About
While force majeure provisions and other contract language can address some issues surrounding the impact of extraordinary events, they may not be the only solution. Groups also struggle with their own obligations to refund advanced registration fees. For some, the bulk of their annual income is linked to the success of a meeting or trade show. For those groups, it is critical that they adapt the appropriate refund policies and explore the need to obtain adequate cancellation insurance.
The terrorist attacks have caused us to look at important, but also mundane contract and insurance issues. In doing so, let1s not forget those lives forever affected by these tragic events: the victims, their families, friends, and the thousands who toil selflessly to help heal our wounds. Our thoughts and prayers are with them. Jed Mandel is a partner in the cicao-based law firm of Neal, Gerber, & Eisenberg, where he heads the trade and professional association practice.
