Hotel Contract Tips: Tackle Cancellation Clauses With Care

by Harvey Chipkin October 09, 2013

This is the second in a two-part series on hotel negotiations for meeting planners.

Meeting planners sitting down to negotiate hotel contracts today encounter a decidedly different business climate than they did just a year or two ago. It has become a sellers’ market, and that makes skillful and informed contract negotiations more critical than ever.

At a recent meeting of the New Jersey chapter of Meeting Professionals International, two industry attorneys discussed the finer points of hotel contracts. In the second of a two-part Travel Market Report series, attorneys Lisa Sommer Devlin and Barbara Dunn give detailed advice on cancellation policies and disputed charges.

Devlin is an attorney with Devlin Law Firm P.C. in Phoenix, which represents hotel companies, and Dunn is a partner with Barnes & Thornburg LLP in Chicago, which represents meeting groups.

Here’s more of their know-how on key aspects on hotel contracts.

Cancellation clauses
• Responsibility in the event of cancellation must be spelled out exactly in the contract.

• Make sure there is a measurement for credit when rooms are resold – such as the average daily rate or group rate.

• Use a sliding scale approach. If you cancel a certain time further out from the meeting, the penalties are lower. Discuss with the hotel the chances of it reselling rooms, which will make it easier to come up with a fair formula.

• The group should never have to come up with 100% of room or food and beverage revenue in the case of cancellation. Come up with a formula that includes food and beverage.

• Sometimes a hotel will cancel, for instance when a property closes. There should be something in writing to cover the costs of moving the meeting. The group is entitled to direct damages so it’s good to make a grocery list of all the costs involved in moving, including finding a new venue.

• Mutual cancellations also happen, but don’t accept a “wash.” It might be more expensive for the group to cancel than for the hotel because of the need to find another venue.

• If a hotel is reflagged to another brand – especially if that means it declines in quality category – the planner should be able to break the contract without penalty.

Force majeure
Hotel contracts also include clauses addressing force majeure situations — unavoidable events such as natural catastrophes that make it impossible to hold a planned meeting. Key considerations and advice include:

• Make a grocery list of potential calamities.

• Contracts should make clear what happens if it is impossible to hold a meeting as a result of a damaged hotel or a massive storm. This can get murky. A hotel might be operating during a snowstorm but a group might not be able get there.

• Objective terms like “commercially impracticable” should be used rather than subjective terms like “unadvisable.”

• If a meeting is revenue-producing, it should be insured for any losses. That insurance might be expensive, but the insurance underwrites the bottom line.

• Groups should protect themselves from instances where it becomes illegal to hold their meeting.

Possible causes range from roads to your hotel be closed due a nearby fire, or a change in laws, for instance, the state where you’re planning to hold a gun show passes a law outlawing guns shows. Devlin said she had a customer who booked a poker tournament, only to discover that this type of gambling was illegal in the jurisdiction.

Financial difficulties at the hotel
• If you suspect a hotel will not be able to deliver on its promises, you have a right to ask for assurances and, if they are not forthcoming, the right to get out of a contract.

• If a hotel seems to be cutting back on services, such as the number of restaurants or hours for the fitness center, this could be grounds for cancellation.

Construction & renovation
• Planners should be aware of and evaluate any construction or renovation work at the hotel. If you think you can still meet, get something in return as far as rate or benefits. You also have the right to cancel if you think the work will disrupt the meeting.

Final words
Before a contract is signed, it’s all about negotiation. After it’s signed, it’s all about bargaining.

Finally, just because there is language in a contract doesn’t mean it will be executed. Everything has to be monitored before, during and after the meeting.