Rebates 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 what rebates are in hotel contracts and why hotels are sensitive to making sure the group discloses the rebate to their attendees.

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:

Rebates in your hotel contracts

Barbara:

Hi, I'm Barbara Dunn, an attorney who works with groups on their meetings, travel, and hospitality contracts.

Lisa:

I'm Lisa Sommer Devlin, an attorney representing hotels and resorts regarding group and convention-related matters.

Barbara:

Today's topic is rebates in hotel contracts. As an attorney who represents groups, I know that meetings can be very expensive for groups to organize.

Often, rebates are a technique by which the group can offset some of those expenses within the hotel contract for use in other areas. For example, rental of the convention center or transportation costs for attendees. It's really important to understand what that rebate does and doesn't mean. First of all, a rebate is typically a set dollar amount that's part of the hotel room rate. Often, it's paid or calculated on a per-night basis, although sometimes you do see rebates based on a per-reservation basis.

So, first, it's important to understand the basis. Second, it's important to understand what that dollar amount is. Again, typically, it's a stated amount. And, of course, most importantly, understanding whether the rebate is included in the group rates noted above will also be particularly important. Now, hotels often want groups to disclose the rebates to their attendees. Now, I know Lisa is going to speak about the importance of disclosing rebates to group attendees.

From my perspective, I advise my group clients to let attendees know that a portion of their room rate will go back to the organization to offset costs. I think that's a reasonable disclosure, and individuals also understand that.

But Lisa, I know the hotels are sensitive to this area in particular —making sure that that disclosure is made.

Lisa:

That's right, Barbara. Hotels are very sensitive about rebates, and there are several reasons for that. First, the rebate is usually added to the negotiated group rate. That can be a problem at this time when people are so rate-sensitive, and the internet allows people to find other available rates so easily.

Suppose the rate is artificially inflated to include a rebate. In that case, it may mean that people aren't interested in booking within the official group room block, leading to attrition claims, and then the hotel is told, ‘Well, there are the people reserved outside the block,’ because the rate was too high. And the hotel responded that the rate was too high because you wanted us to add a rebate.

From the hotel's perspective, they would much rather have the group add whatever the value of the rebate is to their registration fee and educate their attendees about the costs involved in the event.

People need to be told that it costs money to have the shuttle bus take everybody from the hotels to the convention center or whatever the case may be. Build that into the registration fee, and then you won't have those rebates.

But if you think a rebate is necessary, it must be properly disclosed. Depending on the state law that applies, if a portion of the room rate is being paid to a third party, in this case, the group sponsoring the event, and it is not disclosed to the person who's paying that rate, it could be considered commercial bribery.

Now again, the law varies from state to state, but since most major events have people coming from all over the country, you don't want to be in a position of trying to evaluate what state's law might apply and who might make claims.

And the bottom line is if you have to hide how you're making money, you probably shouldn't be doing it. So, from the hotel's perspective, they're always going to put in a clause saying, ‘That if there's a rebate or a commission, that it is up to the group to determine the extent to which they have to disclose that and to make that disclosure if it is required.’

Again, the preference would be to add the rebate to the registration fee. But if not, that disclosure is a key element. Barbara?

Barbara:

Yes, I agree with you, Lisa, on the disclosure point. One other thing to note - often, commissions and rebates live together - coexist in a hotel contract. Often, the commission, which is a portion of the room revenue, is typically calculated based on the room rate, and it's stated that the commission does not include the rebate. In other words, the rebate is subtracted from the group's room rate before commissions are calculated.

So, that's another nuance to look for as well as you look at your hotel contracts. Rebates can be a very effective tool to generate additional revenue. But again, there may be other concessions that groups could seek in hotel contracts. This may have more benefits for the group in the long term and offset expenses for their meetings and events.

Thank you for joining us for Legalease with the Ladies powered by 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.