I reached out to two hospitality industry attorneys—Kelly Franklin Bagnall (KB), who works on the supplier side of our industry, and Joshua Grimes (JG), an attorney on the group side of our business—to get their take on contracts and some of the issues we face as we negotiate for hotel space and conditions. The principles, of course, apply to contracts with other venues and vendors.
By my asking and their responding to these questions, neither they, nor I or Meetings Today or its parent company are providing legal advice or professional services through the interviews or responses. We all recommend that you, your employer (and sometimes even when you have in-house counsel who may not be familiar with hospitality law), or your clients, consult a hospitality industry attorney. A good resource is the Academy of Hospitality Industry Attorneys (AHIMA).
And as I did in the blog this week, a disclaimer: I have presented sessions with Kelly Bagnall and have testified, as an expert witness, for her clients in industry disputes.
Also make sure to check out the August 2016 Friday With Joan newsletter, if you haven't already done so!
Q1. Please tell our readers about you and your experience.
(professional bios were provided by each attorney).
KB: Kelly Franklin Bagnall, Esq., is a partner in Holland & Knight's Dallas office and focuses her practice on hospitality as a member of the firm's Real Estate Practice group. Her practice centers on matters that impact or relate to operations of hotels and resorts, and includes general business counseling and commercial litigation. She has developed strong client relationships with national hospitality companies and ownership groups, representing hotel and resort owners, as well as management entities, in a variety of matters, such as dispute resolution, leasing, trademark, data breach, event contracts and negotiating a wide range of supplier/vendor agreements, including those with online travel companies and sales intermediaries.
Kelly’s practice includes client representation in a variety of disputes involving breach of contract and property damage claims, antitrust prevention and evaluation, ADA compliance, policy and procedure review, products and premises liability issues, deceptive trade practices/consumer protection laws, landlord/tenant disputes, breach of fiduciary duty claims, franchise disputes, creditors' rights and collection matters, labor and employment issues, and various discrimination matters.
She is a member of Academy of Hospitality Industry Attorneys, Dallas Bar Association, Meeting Professionals International, National Association of Credit Management, Professional Convention Management Association and the Texas Bar Foundation, and is part of the faculty for the CTSM program for Exhibitor.
To reach Kelly:
Kelly F. Bagnall
Holland & Knight LLP
200 Crescent Court, Suite 1600
Dallas, Texas 75201
JG: Joshua L. Grimes, Esq., a member of the Bars of New Jersey, Pennsylvania, and Washington, D.C., is with Grimes Law Offices based in Philadelphia. He is a leading attorney in the association, nonprofit, meeting and hospitality industries. And a specialist in all matters relating meetings and conventions, as well as association and nonprofit governance.
A member of the APEX Contracts Panel, and the Board of Directors of the Academy of Hospitality Industry Attorneys, Josh, often quoted in meetings industry publications and a periodic blogger for Meetings Today, was selected as a “Pennsylvania Super Lawyer," and recently designated a “Legal Leader” by ALM Media.
Josh Grimes is one of the association and meeting industries’ most prominent speakers. In addition to speaking regularly for MPI and PCMA, he conducts in-house training programs for corporate and association executives. He’s appeared before industry professionals throughout the United States, and in Europe, the Middle East, Canada and Mexico.
He’s also proud to represent his hometown as an elected Commissioner in Lower Merion Township, Pennsylvania, a part of Philadelphia’s famed “Main Line” neighborhood.
To reach Josh:
Joshua L. Grimes
Grimes Law Offices, LLC
123 South Broad St., 28th Floor
Philadelphia, PA 19109
Q2. What, in your experience, are the top 3 greatest mistakes made when negotiating and finalizing hotel contracts? Why are these problematic?
KB: Each negotiation is very different. In my career, I have negotiated many, many contracts. I do not have a list of “greatest mistakes” as the concept of making a mistake flies in the face of all attorneys’ thought processes and training! That being said, below are three (3) ideas that I would recommend following:
- Speak directly to the decision maker so that information, ideas and/or concerns are not lost in translation.
- Read each version and/or run comparisons to make sure you maintain “version” control.
- When you are confronted with an impasse over an issue, get on the phone to explore the issue in detail. Do not resort to email negotiations at that juncture.
JG: My list of top three mistakes made when negotiating and finalizing hotel contracts are:
- The parties don't read and understand the contracts they're signing. Often contracts contain burdensome cancellation or attrition clauses that no one would reasonably agree to if they read the clauses and gave them any consideration. For example, cancellation clauses that provide the hotel a 100% rooms and F&B cancellation fee if cancellation is more than one year prior to the event, with no obligation for the hotel to resell rooms. That is almost always excessive, but many customers don't read the clause and consider its impact if they choose to cancel.
- Planners don't carefully negotiate an excuse of performance clause. Groups whose members are more socially-conscious are increasingly finding that they want to change meeting locations when they are offended by discriminatory local laws, but their contracts don't allow them to cancel without liability. Also, the reasons for canceling for unforeseeable issues like diseases and terrorism are increasing. Planners need to think about the needs of their groups so they can negotiate a force majeure and excuse of performance clause that is appropriate for their meeting.
- Starting work on the meeting and publicizing it to prospective attendees before the hotel contract is signed. Once the word gets out that the group is committed to a hotel, the group loses its bargaining power to negotiate the best deal possible. It is essential to sign the contracts before making the meeting location public.
Q3a. Many planners believe that they have no legal responsibility for a contract if they “only” execute the details of the meeting and are not involved in negotiating the terms. In what ways might a planner be legally responsible?
KB: If by “execute” you mean “implement” [Joan's note: I did! Thanks.], then most likely it would be an uphill battle to attach liability to someone who simply implements the meeting unless that person causes some harm on site or is liable for something deemed outside the contract. If the planner holds him/herself out as a specialist in negotiating contracts, however, and provides input/suggested provisions, etc., to his/her client, even if the planner does not sign the contract, then the client could potentially raise issues/assert claims against the planner such as misrepresentation, breach of fiduciary duty or negligence. A planner that acts in their official capacity to benefit themselves in a private capacity may also face liability for self-dealing.
JG: A planner would be legally responsible for a contract if they are a signator to it. For this reason planners should carefully consider whether they wish to sign contracts for clients or have the client sign the contracts themselves. Also, planners are held to a certain standard of care in the performance of their responsibilities, so that they must perform as a typical professional planner would. This means that the planner could be liable if he/she doesn't take all actions according to the contract, and avoid errors, that would normally be expected of a professional planner. It could also mean that a planner has a duty to notify the client of apparent defects and problems with the contract. A planner's possible liability would be determined according to the specific terms of the contract, and the specific issues that arose with the planner's performance.
Q3b. What is the legal responsibility of a hotel sales person in the event of a dispute over the terms and execution of a contract should it go to litigation or arbitration?
KB: A hotel salesperson is most likely an employee of either the hotel itself or the management company operating the hotel. So in those instances, the claims are most likely only properly against the hotel and not the employee individually. The salesperson could potentially be held liable under certain circumstances if he/she makes representations on behalf of the hotel that he/she is not authorized to make or if the salesperson makes a fraudulent statement. The salesperson could also potentially face criminal charges if he/she acted in a self-dealing manner. For example, if the salesperson provides a kickback or “under the table money” for inducing a contract with a government entity, they could be charged under anti-kickback laws.
JG: A hotel sales person is normally an employee or agent of the hotel, and as such would have no personal liability if a dispute arises. However, he/she could be compelled to testify at a deposition, trial or arbitration proceeding to discuss the hotel's position on contract issues and its performance of the contract.
Q4a. It is said that we used to do contracts on cocktail napkins or just agree verbally. In your years in practice, what have been the greatest changes in what and how we contract for meetings in hotels?
KB: Fortunately, I missed the “cocktail napkin” contract phase of the industry! I have been in the hospitality industry a long time. I have seen the market pendulum swing from hotel-favored negotiations to group-favored negotiations several times. I have seen template contract length shrink and expand. It is not a surprise that the industry tends to be more reactive than proactive when drafting and negotiating contracts.
JG: Contracts are no longer made verbally or on cocktail napkins. Hotels and clients are no longer secure in verbal contracts or brief summaries of terms, but now need all terms set forth in writing. This is largely because the meetings industry is now recognized as a real business, and parties are much less flexible in their needs. Hotels are subject to accountability rules and can no longer write off losses if a group cancels, or ignore attrition if a group fails to fill its room block. Similarly, companies, associations and other meeting groups are more accountable to their stakeholders, including the IRS and funders in the case of nonprofits.
Also, hotels and customers can no longer count on personal relationships to ensure that they will be treated appropriately. The business needs of all parties require that everyone protect themselves through the written contract as much as possible.
Q4b Is a verbal contract worth the "paper it’s printed on"?
KB: A contract is valid if it contains the following elements: (1) an offer, (2) acceptance of that offer and its precise terms, (3) a meeting of the minds and consent to the contract terms, (4) consideration and (5) execution and delivery of the contract. These elements are required regardless of whether the contract is oral or written. Although many people rely upon oral agreements and “hand shake” agreements, such situations often deteriorate rapidly into litigation when something unforeseen or unexpected occurs which disrupts a party’s performance of the agreement.
In litigation over oral agreements, some factors are easier to establish than others. For example, a meeting of the minds on all material terms is frequently difficult to prove when one attempts to enforce an alleged oral contract. “Execution and delivery” may be established through evidence of the parties’ actions, the circumstances surrounding their communications during the contracting period, and any written communications such as emails or notes. But again, these actions may make proof difficult.
Even if a verbal contract is enforceable, you should be ever mindful of the Statute of Frauds, which renders oral contracts unenforceable absent a showing that the agreement was reduced to a writing and signed by all parties charged with performance. Using Texas as an example, the Statute of Frauds applies to contracts for the sale of goods or the lease of goods, and there are monetary limits on each. In Texas, a contract for the sale of goods for $500 or more is unenforceable unless it is in writing. Similarly, contracts to lease goods for $1000 or more are unenforceable unless in writing. Exceptions and defenses may exist to the Statute of Frauds, including complete or partial performance, promissory estoppel and reliance interests.
JG: Yes, verbal contracts can still be good contracts. They can be helpful for last-minute decisions when it's not practical to prepare a contract in writing or by email exchange. The issue with verbal contracts is proving what was agreed upon—it's often "he said, she said."
Q5a. What now? What do you think will impact hotel contracts in the next few years? How should planners and our partners educate themselves and prepare?
KB: Issues that may impact hotel contracts include rising commodity prices. Also, the issues that arise due to room block pirates do not appear to be going away.
JG: The greatest challenge for planners is containing all of the ancillary revenues and additional charges that hotels seek to impose on customers, both individuals and groups. For example, a hotel may seek to impose an early check-in fee on guests seeking rooms before 3 p.m. on check-in day. Because the hotel didn't have that charge at time of contracting, many planners don't think to add a clause preventing it—and other new charges—from being imposed without the group's consent. Hotels are also interpreting contract clauses in new ways that result in greater charges. For example, charging attrition based upon each night's room block rather than cumulative across the entire meeting; or deducting rooms within the "permitted slippage" from re-booked rooms before calculating whether attrition damages should be paid. Planners and suppliers need to educate themselves on industry trends in order to stay on top of "innovative" changes in contract interpretations.
Another change may be increasing meeting room fees due to reduced room blocks. This is an issue because more guests are staying at Airbnbs and skipping hotels, causing hotels to need to make up lost revenue caused by lower room blocks.
Q5b. And what did I not ask that you think is critical for readers to know?
KB: Read the contract once, read it twice, and read a third time before it is signed to make sure it fully represents your agreement. Ask questions.
JG: Read your contracts and make sure you understand them before signing!
Also, data security issues are a critical topic to address in contracts. Planners should consider restricting a hotel's use of their guests' personal information beyond the particular needs of the meeting; i.e., no use of personal information for marketing or similar purposes. Also, hotels and all vendors should agree to take appropriate measures to protect personal information from hackers and loss.
Final Question: Arbitration or litigation? What’s your preference and why?
KB: I have had good experiences before judges and arbitrators. In most instances, the choice has been made long before I am involved in the dispute. Historically, my personal preference has been litigation because I like the concept of a right to appeal; however, if the court system continues to be plagued in more and more states with overburdened dockets and significant delays, I may be convinced to encourage arbitration.
JG: Depends on the situation. For hotels, arbitration is usually preferred because there is more of a "home town advantage" with arbitrators. Also, arbitrators tend to be commercial attorneys that naturally tend to favor companies over associations or other groups. For groups, litigation is often more preferable. But it frequently depends on the location of the dispute. Some cities are known to be pro-hotel, so it may not make much of a difference.
Joan’s final words: My thanks to Kelly and Josh and other AHIA members I am fortunate to know and with whom I’ve worked and learned and continue to do so. Conditions change—such as the sale of the Waldorf-Astoria in New York City and the move of previously booked meetings, or the laws passed that are in conflict with a company’s or organization’s mission or principles such as we’ve seen in North Carolina and Tennessee (about which I wrote at length about in the July Friday With Joan). Reading contracts and asking questions, knowing the meaning of the terms and revisiting the terms for contracts signed years out should be de riguer.
Finally, here are some relevant links in relation to these interviews:
Please respond in the blog comments with any general questions or thoughts!