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 agreement with the hotel does not include an attrition clause. Does your group have to pay if there is no such clause in the contract?
This issue has been the subject of some debate. 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 in a contract that spells out a formula for calculating charges in the event that the full room block is not used. Attrition damages (often referred to erroneously as penalties) 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 specific formula to calculate the amount of that compensation, such as the convention room rate multiplied by the number of unused rooms. By definition, such contract 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 for a meeting without any corresponding commitment from the group. Under such agreements, groups 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 the reserved 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 specific formula to calculate those damages.
Better Than Nothing All things considered, an attrition clause can be a good thing for both parties. For meeting planners, such clauses can provide certainty and avoid liability for relatively minor room block shortfalls. For hotels, there are several advantages: 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 lessen or "mitigate" their damages by reselling unused rooms. Finally, with attrition clauses, hotels 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, and the absence of an attrition clause does not necessarily relieve a group from liability. Moreover, where a contract requires a group to guarantee its use of a room block, an attrition clause provides the benefit of certainty and, if well negotiated, can establish agreed upon damages that might be lower than what the group might be exposed to without the clause.