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Disclosure of Third Party Payments, Rebates, and Commission

October 8, 2021
Reading time: 6 min

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.

In this video, you'll learn what third-party payments, rebates, and commissions are and why they are used. As well as, things to consider when groups attempt to seek rebates.

Check out what Barbara Dunn (Partner at Barnes & Thornburg LLP, representing groups) and Lisa Sommer Devlin (Devlin Law Firm, P.C. representing hotels) have to say in Legalease With the Ladies- powered by HopSkip!

Video Transcript:
Disclosure of third party payments, rebates, and commission 

Lisa: Hi, I'm Lisa Sommer Devlin, an attorney that represents hotels and resorts regarding convention related matters.

Barbara: Hi, I'm Barbara Dunn, an attorney that represents groups in connection with their meetings, travel, and hospitality contracts. And this is Legalease With the Ladies, powered by HopSkip.

Lisa: In today's video, we're going to talk about disclosure of third-party payments, rebates, and commissions. A number of years ago, groups in the meeting industry started asking details to add on the guest room rates for their events, so that they would be paid for expenses such as bussing, or convention center fees, or other things related to the event.

Hotels became concerned about this for a number of reasons. First of all, by increasing the rate, it could make the rate uncompetitive, driving attendees to other hotels, or leading to attrition issues. Another thing is that the hotels were concerned about whether there were any legal implications of these third-party payments.

After doing some research, it was discovered that, depending upon the state law that's applicable, it could be considered commercial bribery if you take a portion of a room rate and pay it to a third party without telling the attendee who's buying that room about that third-party payment.

Now, there's lots of legal complexities to this. And again, it depends on state law. But hotels were worried because both the hotel and the group who was getting that third-party payment or directing it to somebody else, could be found both criminally and civilly liable for not making these disclosures.

So, it's been the custom for many years now in the meeting industry that hotel contracts will say, “If we're agreeing to make a third-party payment out of the guests room rate, that the group or customer has to determine whether or not there has to be disclosure of that third party payment.” And frankly, it makes sense. If you have to hide how you're making money, you probably shouldn't be doing it.

Barbara: Lisa, yes. As you mentioned, rebates are a very good way for groups to generate refunds or revenues to pay for things like a convention center or for shuttling. And yet there is the concern on the hotel's part that those rebates are not disclosed. So, I think prior to group just thinking that everything could be parked in a rebate, it's certainly worthwhile for the group to consider whether the registration fee might be increased slightly to offset expenses. And this is particularly true when individuals or guests may be outside the block, meaning they may have reserve rooms at another hotel, or even through a vendor like Airbnb or others. And they're not paying the rebate on those rooms.

So, it's something to think about in terms of generating revenue is to really first think about, what's the proper source? But if the group determines that a rebate is a proper source, that should be a conversation with the hotel. When the rate is quoted, it should be inclusive of the rebate. And if the contract doesn't say that, it should. And typically, we're talking about a particular dollar amount, a specific amount, either based on the per reservation, or on a per night basis. Again, that's something really important to include.

As Lisa mentioned, hotels want to know that the groups are going to disclose the rebates to attendees. And for most groups, that's just not a concern. Certainly, within their registration materials, they can note that a portion of the hotel rate will be used to offset expenses associated with the meeting. And that's sufficient.

Lisa, you raised the issue of commercial bribery is certainly one reason maybe not to have that or not to do that. Another circumstance that I'm aware of as well is that a lot of groups have state, local, and federal government room blocks as part of their meeting. And for those folks, for the government per diem rates, again, that might be an add on that is not appropriate, as to coming back to a third party in the way that you describe it. I’d use the term kickback, whether that's informal or not, but it is a concern.

So, again, I caution to groups, if you want to use the rebate, really look into it. Make sure it's the best business thing to do to generate revenue. But then also make sure you've crossed any hurdles or obstacles, as it might relate to legal issues associated with a rebate coming out of someone's room rate. Make sure the hotel is comfortable with the disclosure that you're making, and what you're telling attendees, and ultimately how it's going to be calculated. Because as you know, Lisa, there's so many moving parts in that clause, that if the groups aren't specific, then these are the things that land across our desk.

Lisa: Yes. And another thing to think about is, you can address a lot of these issues simply by educating your attendees. They may not think about the fact that when they're coming to a big citywide event, somebody is paying for those shuttle buses they get onto. They may not think about the costs that are involved in a convention center. So, it's important to educate your attendees and say, “Look, by reserving your room within the official convention room block, we are getting free meeting space. We are getting upgrades for our VIPs.” You may not want to tell that. “We are getting discounts on our food and beverage or other things of that nature that we don't get if you don't reserve your room as part of the official group room block.”

And so, you can then say, “Your registration fee goes to pay for some of these things that we are paying for, all your meals that you're having during the event.” Now you don't need to add that rebate to your rate, you're putting it into your registration fee, and your attendees understand they're getting value and getting something meaningful for that. And then the whole disclosure issue goes away. Barbara, are you seeing that your clients are incentivizing people to preserve within the official block?

Barbara: Yes, I am, Lisa. I think there's always the carrot and the stick approach. And I think a carrot is a good approach for many organizations offering discounts on registration fees for individuals that do stay within the hotel's room block or the group's room block at the designated hotels is one strategy. I think it works well. Certainly, other groups use it as a bit of a stick strategy, in other words, charging more for registration fees.

With the change in the economy to come, and who's to know what leads down the pike, rates are going to be competitive. I think they'll continue to be competitive. So, the fact that someone could save $20 by sleeping at a hotel 2 blocks down and walk into the convention center, or utilize an Airbnb or other rental service for their room is certainly going to become an issue for groups to raise funds for those important offsets for the convention center, license fees, and for shuttling.

So, again, I go back to the groups and say, “Why are you doing the rebate? And is there a better way to do the rebate?” And then, as you point out, Lisa, with regard to people staying inside the room blocks, “What are you doing to incentivize the people to stay in your room block? What extras? What carrots are you giving them, maybe better yet cookies, as opposed to sticks? What are you doing?”

And I think, Lisa, when groups talk to hotels and negotiate rates, the more the group can tell the hotel what it is they're doing to make sure that individuals are staying inside the room block, I think that's more bang for their buck in terms of negotiating concessions. Would you agree?

Lisa: I would agree. And the hotels are very willing to partner with their group clients to help on coming up with incentives to get people to book within the room block. So, the bottom line of this is adding on rebates or third-party payments, or commissions or housing fees or whatever you want to call it onto the room rate to cover your expenses is one way to do it. But there are lots of other opportunities to raise that money as well that avoids the disclosure issue and avoids the other problems that can come from inflating your room rate to cover these expenses.

So, work with your attorneys and work with your third parties to think through how you can best approach these problems. Thank you for joining us on Legalease With the Ladies powered by HopSkip. Please do leave your comments and questions below, and we'll look forward to seeing you on the next video.

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.

Interested in learning more about contract terms and contract clauses in your hotel contracts? 
Check out the HopSkip Contract Clause Education Center, created by Barbara Dunn and Lisa Sommer Devlin, and become a hotel contracts expert!
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