THE PENALTY BOX
Here's an example of what to watch out for in a typical cancellation clause.
Clause: “If the Group cancels this, 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 percent charge of anticipated rooms, food and beverage, and function space revenue without respect to the date of cancellation.”
Effect: Excessive 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. The hotel is instead trying to impose a penalty if the group cancels in order to move the meeting to another property. This penalty is above 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).
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, the group may be bound by the contract language unless they 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. It is much easier to strike the offending language out before signing the contract than to fight it after the fact.
Tyra W. Hilliard, Esq. (firstname.lastname@example.org), is an attorney at Atlanta-area law firm Sumner & Associates, P.C.