How to Structure Your Hotel Event Deposits and Credits

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 about how to approach your event deposits with your hotel partner. Learn about what it means for a planner to have a master account with a hotel, how to structure your deposit schedule with your hotel partner and why getting your hotel partner to agree to accept your deposit be placed into an escrow account might be difficult.

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:

How to Structure Your Hotel Event Deposits and Credits 

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

Barbara: Hi, I'm Barbara Dunn, an attorney that represents groups.

Lisa: And this is Legalease with the Ladies powered by HopSkip, a video series about issues in the convention and meeting industry.

Barbara: Thank you for joining us with Legal Ease with the Ladies powered by our friends from HopSkip. Today's topic is all about money. Money is critical and important in a lot of settings. But in particular, in the hotel contracts and in the hospitality industry, in general, money has become a very important concept to deal with during the contract negotiation phase, not just at the end of the contract performance page. So, money has become an important part of contract negotiations nowadays, not just left to discussion after the contract closes. So, specifically, groups have become accustomed to having a master account with a property.

So, essentially, establishing credit at a hotel so that they don't have to make a deposit or they don't have to pay in advance for the master account charges. Don't take that for granted, however. Credit is tough nowadays across the board, so it's not unreasonable for hotels to ask for a credit application from the group sooner than later. Even if the group has had established credit with that property before. That's really something to be mindful of and to look at nowadays. The other thing to be mindful of as well are deposits. Many of you again are accustomed on the group side to not paying deposits when you have established credit. And yet, the deposit schedules are becoming stronger.

They're becoming longer with multiple deposits being due and at a higher rate. So, my concern always with paying more in deposits is if there's a problem later on from the group's perspective, it's easier to argue about that money when you're holding it than when the hotel is holding it. So, for that reason, I really encourage clients, take a look at both your credit clause and also the deposit schedule. And if the hotel wants more deposits, that might be something that's workable. Look to negotiate the dates on which the deposits are due, hopefully not too front loaded. Hopefully, they're closer into the meeting date and also look at the amounts. Hotels are willing as well to negotiate on deposits. Lisa, this is something you and I really haven't talked about over the years, but I think this is something that's become mission critical in light of the change in the economic times.

Lisa: It definitely has, Barbara. If there's one thing that we've known as a result of COVID-19 is that it's had a devastating impact on the meeting and event industry. Hotels have had to cancel hundreds if not thousands of contracts at every properties, and as many people know, many hotels have been forced to shut their doors. Some may never reopen again. So, when that happens, customers are concerned about getting their deposits back. If a contract can't go forward, due to a true Force Majeure, of course, those deposits do need to be returned. But it's taking hotels longer than many people expected to return those deposits simply because of cash flow issues.

When a hotel gets a deposit from a group, it doesn't keep it in a separate account. It uses it to fund its cash flow and its operations. When everything shuts down and it doesn't have new cash coming in, it may have difficulty generating the cash to refund those deposits that have been paid. A number of customers as a result of this have asked for deposits to be put into escrow accounts. You're going to find that hotels are going to be very reluctant to do that. For a couple of reasons. First of all, if the money is put into an escrow account, meaning set aside and held for application only to that group's account, that means the hotel can't use that money for its cash flow which will make operations very difficult.

The other part of it is, you can't just say, you have to escrow our funds. When you have an escrow, it's required under the law that you have an escrow agreement that describes where the money will be placed, what interest will be paid, and who gets the benefit of that interest, who controls when the money is released or not released, and all kinds of other factors. There's also a cost for having an escrow account. So, when a customer ask a hotel for an escrow account, not only are they saying to the hotel, you're not gonna have our deposit for cash flow reasons. They're also saying there's going to be a cost involved with this and we're going to have to have a third party involved. Hotels are going to be very, very reluctant to do that. So, while your concerns about getting your deposits back if things go wrong are legitimate, you need to understand that operationally for the hotel, escrow is not going to be a solution.

The better solution as Barbara pointed out is to have deposit schedules that both parties can live with and understand where that money is going to go and what's going to happen with it. Barbara, have you got any final thoughts on these topics?

Barbara: Thanks, Lisa. I think you've done a great job in painting the picture of how the cash flow aspects are from the hotel side. As I mentioned earlier, from the group side, paying in a lot of upfront means there's a lot of risk associated with that. But I'm also confident that that can be a point of negotiation for the parties and that it really should be and in fact, one strategy groups might consider is whether they are willing to pay more deposits closer upfront if you will as opposed to right before the meeting, is that they might get an edge in negotiating concessions. So, something to think about too as a tool, the so-called shield and sword aspects of it.

Thank you so much for joining us. This is Legalease with the Ladies powered by HopSkip Please leave your feedback in the comment section below.

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.