Lowest Rate Parity In Your Hotel Contracts

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 the concept of lowest rate parity when it comes to your group's contract with the hotel. Understand why rate parity can be important to a lot of groups and hear how hotels need to manage this kind of request.

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:

Lowest Rate Parity

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

Barbara: Hi, I'm Barbara Dunn, an attorney that works with groups in connection with their meetings travel and hospitality contracts.

Lisa: And this is Legalease with the Ladies powered by HopSkip. In this video, we're going to talk about lowest rate or rate parity clauses and their use in the convention industry. I think the most important thing to understand from the very beginning is that, no group is legally entitled to the lowest rate. If you're reserving 200 rooms out of a 500-room hotel, the hotel has every legal right to sell those other 300 rooms at whatever rate it wants. Now these clauses started probably back in the great recession when business had gone into nothingness and groups were starting to come back. And they were concerned that the contracts that they were going to sign wouldn't be consistent with what the market rates would be. But there have always been lower rates available.

Whether it was in the 1990s or 2000s or now, there have always been rates available in every hotel that are lower than the group rates. There are always rates available at the hotel next door that may be lower. So, the important thing to think about is marketing your event and making your attendees reserve their rooms in such a way that it doesn't matter if there's lower rates in the house. The group has 100% control over how people make their reservations. They can require them to reserve as part of the official group block. If they want to participate in the event or they can incentivize them by giving them a lower rate, if they decide that they're going to a lower registration rate, if they reserve within the group block. And there's a variety of other things you can do, so that those other available lower rates don't matter because your attendees won't be looking for them or won't be using them.

Now having said that, I understand that groups still come to us and say, ‘Well, our group rate is $200 but we can see on an online travel agency or we can see even on your own hotel website that there are lower rates available.’ Well, the first response to that is those rates are for different rooms. Those rates are being given to people that don't get free meeting space. They don't get one per 50 comps and now everybody wants one per 40. They don't get sweet upgrades. They don't get food and beverage discounts. They don't get all those concessions that the hotel contracted for your event.

The hotel is contracting for the entire revenue package of the event. The room revenue, the food and beverage, the concessions, everything all together. And if they had to give you a lower rate or whatever the lowest rate in the hotel might be, you'd be getting different terms in the rest of your contract. You wouldn't be getting those concessions and you wouldn't be getting those food and beverage discounts. The easiest way for me to explain it from the hotel perspective and Barbara always laughs at me but it's true. I always say, ‘Sure’. I’ll give you that lowest rate clause if you agree that if it turns out the prevailing rates are higher; you'll pay the higher rates. And all the years I’ve been representing hotels I have never had a customer say, ‘Sure, I’ll do that.’

So, why is it that the hotel should say, your rate's 200 or whatever the lowest rate in the house is when you won't say our rates 200 or whatever the highest rate in the house is? So, I understand that groups find that they're concerned about these issues, but they need to look at other ways to look at the issue and other ways to incent their attendees to reserve within the official group room bock Barbara, what do you do when your clients bring up this issue?

Barbara: Thanks Lisa, so when groups bring up the issue of rate parity, there really probably are two concerns they're focusing on. One is not being the bane of the members existence if the members start calling saying, ‘Hey, why are they getting a lower rate if they do this? Our rate is high. You have lousy negotiators working for you.’ And all the rest. In other words, there's not an understanding among the consuming public and the members or attendees who might come to this meeting as to all the factors that you just mentioned that make up their room rate. So, it's really important from a visibility/credibility standpoint that the rate really be competitive. So, I think that certainly drives a lot of the concern and a lot of the consternation.

The second piece of it to your point Lisa is incenting people to stay at the hotel within the group's room block. Yes, it's true. There might be other ways for groups to package rates - they may roll in one-stop shop - register for the conference and get a hotel room. But we know consumers are savvy in general with travel. We know they're going to be looking at travel discounts and rates no matter where they come about. If it's a matter of whether they can come to the meeting at a lower rate or not come at all, then certainly they'll look for those lower priced options. And as you know, there are lots of folks - interrupters in the marketplace - limited service hotels, vacation rentals Airbnb etc., that are also competing in the marketplace.

So, the group's goal is the same as the hotels and that is to get people to stay at the hotel. The biggest concern is when the hotel itself is promoting lower rates on its website or its toll-free reservation service, we know on the internet that there are lots of third parties or wholesalers that are selling rooms from that hotel. But it is important to understand that the hotel has already sold those rooms to that third-party wholesaler. Then when they're resold to consumers, they're sold under different prices and different terms and conditions. Essentially, it's not an apple to apple proposition.

So, if you're going to go for the lowest rate provision, the parity provision, it is important to understand what the hotel could can and can't do. In particular, again we're concerned about the hotel itself promoting lower rates over those block dates. And one thing I find a lot here is, we'll include the provision that says the hotel won't do that. And yet there's no remedy, there's no fix built into that clause. So, it begs the question, ‘What if they do it anyway?’ Similar to we talk about a walk clause and not including in the contract, it leaves it open to interpretation. So, the issue is if in fact you can show that that rate parity clause has been triggered. In other words, the hotel has promoted a lower rate. What will happen? Will the hotel flip the switch and turn off the offering of that rate, or will the hotel offer that rate to the group's attendees as well? That's really among the biggest issues that I see.

Finally, one thing also important to note. There are always going to be exclusions to that caveat about the hotel not offering lower rates. In particular, airline crew rates and corporate volume rates are always lower than any rate a group could get so, those are some common sense exceptions that the hotels will seek in that language. Lisa, you and I have talked about over the years that there are a lot of parameters within that clause that could be moved. It could be a commitment that's only made as to the peak nights. It could be a commitment that has those exceptions that I just noted. It could be a commitment that only applies if the group has met already by cut-off date a certain percentage of its room blocks.

So, there definitely are ways that the groups and hotels can work together. Again, I think the aligned goal is to make sure that folks do stay at the hotel. That's really important to both parties and really keeping that credibility and integrity in the rate is particularly important Lisa, as the groups in the hotels work together, again, to combat attrition but ultimately for their mutual benefit.

Lisa: I don't disagree with you Barbara. But again, I have to emphasize that nobody is entitled to the lowest rate in the hotel. Especially, those groups that are getting all kinds of things that those lower rated rooms don't get. So, you'll hear Barbara and I say in a number of these videos that, there are different ways to approach a negotiation. And the best way is always not to demand but to ask. So, if rate parity is something that's important to you. Something you need to think about is being the biggest player in the hotel. You're going to get a lot farther with that kind of a request if you're taking up 80% of the hotel than if you're only taking 20 rooms out of a 500-room hotel.

Again, the hotel has a financial obligation. It could do its duty to its ownership to try and sell every room in that house every night. And if they can sell it at $59 instead of $100, they need to do that. So, when you're restricting their ability to sell their other inventory with your clause, you need to be in a position that makes it worth their while. Being a small player in a big hotel is not in that position. Another thing to think about when you think about the remedy, if you get the hotel to agree with this, the hotel is going to be more willing to work with you if the remedy is that they will turn off the lower rate rather than having to match the lower rate. Especially, in a big event if suddenly the hotel has to cut all of your attendees’ rates by $20 or $30 or more, that's going to be a huge financial hit to the hotel.

On the flip side, if all they have to do is turn off the lower rate on those last few rooms in the house that they're trying to get rid of they're much more willing to do that. So again, approach this kind of discussion with the understanding you're not legally entitled to it. You have the ability to incentivize your attendees to reserve within the room block, so that lower rates won't matter. And then discuss a fair and reasonable clause with your hotel partner.

Thanks for joining us. This has been Legalease with the Ladies powered by HopSkip. Please leave your comments below and we look forward to seeing you in our 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.