Unsold Rooms Credit: Is a Hotel Obligated?

Here’s a typical email from my Inbox:

“Mr. Grimes, our group missed its room block by 300 rooms, now the hotel is charging us $60,000 in attrition according to the liquidated damages clause in our contract. But we know the hotel was sold out every night during our event. Isn't the hotel obligated to forgive our attrition bill since they resold every one of our rooms? Otherwise it’s double-dipping, since the hotel is paid by our group and also the new guests.”

My typical response: “No re-booking clause in the contract? Then you’re obligated to pay. Sorry.”

A rebooking clause is second-nature in the meeting industry. Most hotels will agree to try to rebook unused rooms in a group block and give the group credit for them if asked. But the hotel must be asked–and a rebooking clause must be written into the contract. If the contract is silent on the issue, then the hotel has no obligation to credit the group for rooms rebooked.

This rule is part of “liquidated damages," the legal principal governing most attrition and cancellation clauses. These are the clauses where the hotel and group agree to pay a certain set amount of damages if the group cancels or misses its room block, under the theory that it’s easier to agree on reasonable damages in the contract rather than prove the hotel’s actual damages if attrition or cancellation actually occurs.

A key part of liquidated damages clauses is that they don’t require a hotel to try to re-sell rooms, or to credit the group for any rooms resold. This is why planners need to insist that a re-booking/credit clause be part of the written group contract. Hotels will typically agree because these clauses are common, but you need to ask.

Is this “double-dipping” by the hotel if there’s no re-booking/crediting clause? Yes, but there’s not anything legally wrong with that. With liquidated damages the hotel and group agree that the hotel will take a specified amount if the group cancels or leaves a room empty. This amount presupposes that the hotel will try to rebook the group’s unused rooms, but the hotel is accepting the risk that the rooms may go empty. It follows then, that if the hotel is able to resell the rooms, it should reap the benefit of its efforts.

What if there’s no liquidated damages clause? In other words, either (i) the contract has no attrition or cancellation clause; or (ii) the contract simply states that upon cancellation or failure to meet the room block, the hotel shall have “any remedies available under the law”.

This scenario creates entirely different legal rights from a liquidated damages clause. The hotel–the injured party–is entitled to whatever actual damages it can prove. But as part of the damages calculation, the hotel is required to mitigate its damages by trying to reselling any rooms unused by the group. Further, the hotel must give the group credit for the value of all rooms resold.

Is an actual damages clause in a contract better than liquidated damages? Maybe. Each group and hotel must consider their own situation and negotiate their best deal. But when doing so they need to understand the consequences of each clause, and include a rebooking/credit provision in the contract if necessary.

Final Note: This blog is not “legal advice”; rather, it’s a discussion intended to make you think and draw your own conclusions.  Legal advice can only be rendered after a discussion of your particular circumstances with an attorney competent in meetings law.

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