Contracts/Legal / October 01, 2014

Keeping up with key clauses in hotel contracts

by Fred Gebhart

Complacency is never an option when it comes to working in the rapidly changing world of meetings and events—especially when it’s time to negotiate a contract, where keeping up with key clauses is critical.

“You need all the standard things, like a cancellation clause that works for both parties,” said Tony Pastor, manager of McKinsey Learning, based in New York. “But there is more to contracting than the familiar hot-button issues like cancellation and indemnification. The market is changing, hotel practices are changing and contracts have to change to accommodate the way business works today.”

Meetings Cancellation Clauses

Start with protecting yourself via cancellation clauses. Once upon a time, cancellation was something planners and their clients did. Cancellation may have been in response to an impending hurricane, civil unrest, disease, recession, labor issues and other causes, but hotels almost never called off an event. That is changing, as demand continues to outpace supply in nearly every meeting market.

“Properties are increasingly cancelling events because they see a better piece of business for your dates,” said Joshua Grimes, the planner-focused managing attorney of Grimes Law Offices. “The group needs to have an adequate remedy in the contract. I see too many contracts with no mention of cancellation by the venue or only vague mention of unspecified remedies.”

Meetings Indemnification Clauses

Indemnification is another traditional trouble point. Too many standard hotel contracts are written to protect the hotel, says Tricia Van Every, independent contractor and director of national accounts for Premier Event Resources, based in Phoenix.

Indemnification clauses, she says, can hide nasty surprises.

The most egregious clauses put the burden for any damage or loss from any cause anywhere on property on the group. That kind of broad language might sound reasonable, but it could leave your client on the hook for rebuilding if a distant wing of the hotel is struck by lightning and burns down during your event.

Indemnification clauses are also being extended to cover risks that hotels have traditionally borne—unless planners are alert. Big chains seem to be the most aggressive in trying to shift liability to groups, Grimes says. He cited contract provisions that require groups to notify attendees of Americans with Disability Act issues and indemnify hotels against any purported ADA breeches, even though groups have no part in facility design or ADA compliance.

Another common clause requires groups to indemnify hotels against claims made by exhibitors relating to hotel facilities, procedures, requirements and performance. Again, the group plays no role in hotel operations and has no business indemnifying the hotel against practices it cannot control.

“The group should only absorb risks it can control,” Grimes says. “If there is a data breach in hotel operations, why should the group accept liability when it has no control? You should only be accepting risks that are your responsibility.”

Meetings Room Block Clauses

One of the risks that falls under the group’s responsibility is its room block. Continuing strong demand is encouraging hotels to push back on planner efforts to obtain low-price guarantees, and they’re also taking a tougher stance on attrition.

“Hotels are not legally required to guarantee the lowest available rate, which is why they resist putting such clauses in their contracts,” says hotel counsel Lisa Sommer Devlin, with Phoenix-based Devlin Law Firm. “Planners need to manage their attendees more effectively to ensure they book within the block. One mechanism is to require booking within the block as a condition of registering for the event. Other groups are using incentives such as registration discounts or bus passes for booking within the block. Others are trying disincentives such as higher prices for attendees who book outside the block. Booking within your block helps insulate you from attrition concerns.”

Boosting the percentage of attendees who book within the block eases attrition worries, but it leaves last-minute registrants vulnerable to sticker shock. Registrants who book after the block is filled can be socked with leisure travel rates. Room block poaching by third-party companies unaffiliated with an event are also contributing to the risk of attrition penalties.

“Yield management is coming and hotels are looking to maximize revenues,” Pastor says. “If you need additional rooms, hotels are apt to charge leisure rates. That $350 group rate suddenly costs $520, attendees are unhappy and you take the heat for it.”

One solution: expand the attrition clause to cover both sides. The group pays a penalty if it fails to meet a specified percentage of its room block. On the other side, the hotel extends the negotiated rate if the group goes over its block by a specific percentage as long as additional rooms are available.

“This is a new tactic that we could see come more into play,” Pastor says. “Hotels are more inclined to say yes when they are negotiating the contract. When you get into trouble is when you are close in and need another 10 rooms. That’s when you get socked with obnoxiously high rates. Hotels are reluctant to overcommit rooms, but the key to this clause is room availability. The hotel isn’t committing to holding more space for you, just making rooms available if they have inventory. It’s not a slam dunk, but it’s a good fit when you are talking about cancellation and attrition.”

Meetings Force Majeure Clauses

Force majeure literally means a superior or irresistible power. In event contracts, force majeure typically covers acts of God, war, pestilence and other emergencies. But groups may be poorly protected.

Too many planners focus on what planners’ attorney James Goldberg, principal of Washington, D.C.-based Goldberg and Associates, calls the “horrible-horribles”—war, disease, natural disaster, civil disturbances and the like. The problem is that last catch-all—“other emergencies.”

“The word ‘emergencies’ can be terribly restrictive,” Goldberg says. “What if your association event is blindsided by a conflicting event that requires your attendees’ presence, say a postmasters’ event that is hit by a surprise U.S. Postal Service employee meeting that is required attendance for all postmasters? That’s not an emergency, but it kills your event. Rather than ‘emergencies,’ I advise planners to go with ‘other situations beyond the control of the parties.’ That’s force majeure at work.”

Other contracts allow cancellation if performance of the event would be illegal or impossible. Good, Goldberg says, but not enough. Storm damage could close an airport, making it difficult to impossible for attendees to get to the meeting. But if the venue is functional, the event could go on—it just would not have attendees, presenters or exhibitors. Adding the phrase “or commercially impracticable” solves the problem.

Meetings Construction and Remodeling Clauses

“I see too many contracts that do not address construction and remodeling,” says Robyn Mietkiewicz, innovation partner at INNOV8 Meetings + Events. “This can have a huge impact on your meeting and the attendee experience.”

Every contract needs a clause saying that over your meeting dates, there cannot be any renovation or construction that could impact the event, the hotel image or attendee logistics, she says. Renovation, remodeling and construction are necessary parts of hotel operations, but they have no place in your event.

“Every contract involves risk,” Devlin says. “The goal is an equitable sharing of that risk. This is a business and both parties have to have some skin in the game.”

This story was originally published in October 2014 and updated August 23, 2019.

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