Addressing Economic Downturns in Your Hotel Contract Clauses

The information provided in this video does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information in this video may not constitute the most up-to-date legal or other information. Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter.

Introduction:

Hotel contracts are like high-stakes bets on the future, and the unpredictability of economic cycles can make these bets even riskier. Both hotels and meeting planners aim to mitigate risks, but how can this be done when economic downturns are factored in?

In our recent webinar, Sean Whalin (Co-founder and CEO of HopSkip) sits down with legal experts Barbara Dunn (Partner at Barnes & Thornburg LLP representing groups) and Lisa Sommer Devlin (Devlin Law Firm, P.C. representing hotels) to discuss the complexities of incorporating economic downturn clauses in hotel meeting and event contracts.

TL;DR:

What Clauses Can Be Added to Hotel Contracts to Mitigate Economic Downturns?

• Hotel contracts are futures agreements, locking in terms of future services and inventory.
• Both parties assume risks and modifying contracts based on economic downturns usually gets pushback.
• Experts suggest booking conservatively and building flexibility into contracts rather than relying on economic downturn clauses.
• Site selection and best-rate negotiation can also provide buffers against economic uncertainty.

This conversation was recorded during HopSkip's recent webinar "Navigating Meetings & Events in Q3"

What Clauses Can Be Added to Hotel Contracts to Mitigate Economic Downturns?

Video Transcript:

0:17 | Lisa Sommer Devlin

The problem is that a hotel contract is a futures agreement. You are agreeing today on the terms and conditions for buying inventory from that hotel and services in the future. So you're locking in those terms.

Both parties are taking a risk, and if it turns out that the contract isn't as good as you hoped that it would be, that's the risk of doing business. If you're not certain you're willing to make those commitments, you shouldn't be locking in the contract now.

So whenever somebody says, well, I want to be protected if there's an economic downturn, my response is the same as when they ask for a no lower rate clause.

Okay, I'll let you change the rate if the economy goes down, but will you agree to increase the rate if the economy goes up and prevailing rates are higher?

And, of course, they say no. So you're asking the hotel to assume the risk of the economy over which it has no control, and you're asking the hotel to enter into a contract that isn't a contract because it's subject to change down the road depending on the economy.

And so you have a lot of pushback on those kinds of things. So what's your solution instead? Barbara, I'm sure, will say book conservatively, book shorter term.

If you're worried, do things like that to change your contract commitments rather than including a clause like this.

1:38 | Barbara Dunn

You took the words out of my mouth, Lisa. Absolutely.

And you know, I think the point is that I'm not a fan of any clause that speaks to economic downturn or complex discussion of CPI and all the just. I don't see those as workable. I understand the concepts behind it, but I don't see it as workable.

We've all experienced situations in which your pickup at the meeting may have nothing to do with the economy, it may have to do with the city, or it may have to do with what's going on within your industry. It may have several things right that could impact your pickup.

So, absolutely, my strategy on that front is to be cautious, my strategy would be to build flexibility in the room block, in your room block attrition food and beverage minimums, to the extent that's an issue. But also site selection.

2:32 |  Barbara Dunn

If you have a concern about rates and the concern you believe is justified because there are lots of lower-priced options around, that's probably something you're never going to manage. In other words, folks booking at lower-priced hotels and walking down the street. So that's a site selection issue. You'll want to be aware of that; you'll want to address it.

But I think the best thing that groups can do nowadays is negotiate the best rate for what they believe to be for that year and group. This is common, many of you look at your rate for the year before because that will impact your attendees, so there is a way to measure some of that.

But all that is to say, negotiate the best rates, negotiate the flexibility that you need, and then whether it's the economy or something else, if that hope for the best, plan for the worst happens, you have options within the contract itself.

Conclusion:

In a nutshell, while adding clauses for economic downturns to hotel contracts may sound appealing, it's not as straightforward as it seems. Rather than relying on clauses that may not be workable or well-received, the smart approach is to build flexibility into your contract terms, from room block attrition to food and beverage minimums. This prepares you for whatever economic winds may blow.

With HopSkip, you have an ally in the complex world of contract negotiation, enabling you to source strategically and negotiate terms that work best for you.

Find out why Event Professionals are switching to HopSkip

The information provided in this video does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information in this video may not constitute the most up-to-date legal or other information. Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter.