Dangers of New Event Contract Clauses Being Requested by Meeting Planners
By Lisa Devlin Attorney, Devlin Law Firm | December 16, 2018
Nobody likes surprises, and that applies to both hotels and meeting planners. Unfortunately, meeting planners are asking hotels to agree to clauses that can have surprisingly negative impacts on hotels. Hotel executives need to be aware of these new clauses to avoid the loss of revenue and expensive legal disputes that they can cause.
To avoid "surprises," meeting planners tend to focus on three things. First, when contracting for an event that may be scheduled for a year or even five or ten years in advance, the planner wants to minimize the risk that things that happen between the time the contract is signed and the when the event occurs may negatively impact the event. Second, the planner wants to make sure that negative experiences at prior events are not repeated. Third, the planner wants to place as much risk as possible on the hotel, rather than on the customer. Understanding these clauses and the risks they pose will help Hotel Executives and their sales staff respond to these requests.
The most dangerous new contracting request is an expanded "Force Majeure" clause that a prominent meeting industry group is recommending to its members. A customer always has the right to cancel a contracted event for any reason, or no reason. The question is whether the customer is obligated to pay the hotel damages for doing so. Meeting planners have long tried to expand Force Majeure clauses well beyond what the law would generally include in order to allow the customer to escape or minimize its liability if the customer underperforms or cancels an event.
The typical expanded Force Majeure clauses include vague and overbroad terms such as allowing the customer to cancel without payment if the event becomes "inadvisable," or "unsafe," or even if there is a "change in economic indicators," but the newly touted clause is directly targeted at the volatile political climate the US has experienced in recent years. This new clause allows a customer to cancel an event without payment if new legislation or regulation adopted in the jurisdiction where the event is contracted "has the effect of" discrimination against certain groups or if it violates the policies of the customer. The clause purports to apply to a wide group of people, their status or their activities, not all of which are currently protected from discrimination under federal law.
The clause recommended by the industry group is just one of many similar clauses being requested by customers, and the dangers it presents are obvious. First, when new laws or regulations are passed, it is often a matter of great debate whether they "have the effect of" being discriminatory. The new clauses do not clarify what happens if there is a dispute over whether the new law "has the effect of" being discriminatory. This likely will result in the customer claiming a right to cancel without payment due to the new law, while the hotel will claim that the customer must pay cancellation damages. The disputes caused by the clause could result in lost business that the hotel has been showing on its books as definite for many years, and expensive legal disputes.
To combat these expanded Force Majeure clauses, hotel sales staff need to be prepared to explain to meeting planners that hotel companies have strong anti-discrimination policies in place and should not bear the loss of business if a group elects to cancel an event due to political actions of a jurisdiction that have nothing to do with the hotel. Some hotels have been successful in negotiating a separate cancellation provision applicable to "political" cancellations that either provides for a reduced amount of damages to be paid by the customer, or that requires the customer to move the event to another property in the company's portfolio in another jurisdiction to offset some of the loss.
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