The events of September 11, 2001, have dramatically affected the peace of our society. Our nation is joined in an expression of shock, grief, and renewed patriotism. Our day-to-day activities seem small in comparison, but those everyday activities must go on. In this spirit, there is a new appreciation of force majeure provisions in hotel and convention center contracts.
A force majeure or termination provision addresses conditions under which a party may terminate an agreement without liability. Some are better than others. Many mainly protect 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 and terminate its agreement without penalty if, 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.”
Even with strong contracts that make it possible to cancel without penalty, many groups are choosing go ahead with meetings planned for after September 11.
Deciding to press on, however, does not necessarily mean that attendees will fill the room block. Most hotel contracts' attrition clauses impose fees on groups that fail to fill all or a set percentage of their sleeping rooms and, in many cases, food and beverage commitments. Thus, groups that don't cancel are faced with a substantial likelihood of attrition penalties. As has been widely reported, many hotel chains have relaxed or waived cancellation and attrition provisions. However, not all have, and some grace periods are longer than others.
Meeting planners face a 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 attrition fees. Faced with this dilemma, many groups are working with hotels to proceed, but with a written agreement to waive attrition fees. However, not all hotels have been willing to revise the contract.
Future contracts should include 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 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.
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 struggle with their own obligations to refund advance 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 to adopt appropriate refund policies and to explore adequate cancellation insurance.
The terrorist attacks have caused us to look at important, but mundane, contract and insurance issues. In doing so, let's not forget the lives forever affected: the victims, their families, friends, and the thousands who toil selflessly to help heal our wounds. Our thoughts and prayers are with them.
Jed R. Mandel is a partner with the Chicago-based law firm of Neal, Gerber & Eisenberg, where he heads the trade and professional association practice. He is a frequent lecturer and writer on meeting-related topics.