Late last year, many organizations sought to terminate contracts in Arizona because of concerns over that state’s immigration law. While well-intentioned, these terminations frequently resulted in litigation and financial settlements. Why? A lack of a contractual provision permitting termination for reasons other than a force majeure occurrence—an event that made performance “illegal or impossible,” as specified in the .
Here are a few other examples of terminations that don’t fall under:
Bankruptcy filing by either party. A fairly common provision permitting termination without liability in the event of bankruptcy often can’t be enforced since federal bankruptcy law permits only the party filing bankruptcy to terminate the agreement without liability. As a result, and also because many financial difficulties don’t result in a formal bankruptcy filing, some groups have added as reasons for termination the appointment of a receiver to manage the hotel’s affairs or a foreclosure by the hotel’s lenders.
Construction and renovation. This is another area of concern for planners, many of whom seek to be able to terminate a contract because of actual or potential disruption. Pointing out that construction or renovation is, to some degree, an ongoing activity at hotels, sales managers are reluctant to agree to provisions that give planners total discretion over when to terminate a contract. One approach might be to provide that if one or more of the hotel’s restaurants are closed due to construction, or if the lobby has been relocated, the group may terminate the contract without liability.
Deterioration in hotel quality. Specificity is best, since parties often disagree as to what constitutes deterioration. One solution would be to provide that if diamond ratings assigned by the American Automobile Association, or star ratings assigned by Forbes magazine adversely change, the group can then terminate the contract without liability.
If the convention center the group is using is not available. Groups will often seek a provision allowing termination of a hotel contract without liability if the convention center or major meeting venue they are using is unavailable for any reason. Such language is especially important, since hotel are typically signed several years prior to a center agreement.
Public policy issues, such as immigration and discrimination. Groups may have a particular sensitivity to legislative issues. Explaining the rationale for a public policy termination provision (e.g., the attendees are predominately Hispanic) could result in a provision stating that if the state in which the hotel is located changes its laws in such a way as to result in greater penalties against illegal immigrants, the group could cancel without liability.
James M. Goldberg is a principal in the Washington, D.C., law firm of Goldberg & Associates PLLC. His practice focuses on representing associations, corporations, and independent meeting planners. He is the author of The Meeting Planner's Legal Handbook.
You Might Also Be Interested In
Our Contracts & Negotiating One Stop—Your one-stop information source about contracts and negotiations for meetings.