Unlocking Leverage: Expert Tips for Negotiating Hotel Deposits

Introduction:

In a recent HopSkip webinar, industry experts Sean Whalin (Co-founder and CEO of HopSkip), Barbara Dunn (Partner at Barnes & Thornburg LLP representing groups), and Lisa Sommer Devlin (Devlin Law Firm, P.C. representing hotels) discussed the challenging issue of high hotel deposits for event bookings.

Barbara shared: hotels are now demanding heftier and more frequent deposits, even from those with sterling credit. "Leverage is everything," she advised, hinting that savvy negotiators could reduce subsequent deposit demands after the initial payout.

But Lisa Sommer Devlin painted a stark picture of the hotels' perspective, revealing a deep-seated fear of unpaid bills that has only intensified in recent years. Her advice? A solid payment history and glowing recommendations could tip the scales in your favor.

As the conversation heated up, both experts dismissed the idea of escrow arrangements as a costly and impractical solution, underscoring the delicate dance of negotiation needed to balance trust and security in these high-stakes dealings.

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How can we effectively negotiate or challenge the high deposits that hotels often require at various stages?

Transcript:

Barbara Dunn:

I'll jump in on this one and say, yeah, I'll say I'm seeing more. More deposits. I'm seeing more deposits even from groups with well established credit. So more amounts and deposit more frequency of deposits. So it's certainly something that you should be aware of.

From a negotiation standpoint, groups that have had established credit and would continue to qualify for established credit.  

That's an opportunity to identify that potentially as an, after an initial deposit, there shouldn't be other deposits required, or if there are deposits required, they should be lower in amount.

The key is, once you pay out, the higher, the more you pay out. Right. It's always easier to argue about money when you're holding it and when they're holding it. So it becomes a matter of leverage. I'm always concerned about groups that might have to pay 100%.

Lisa, I know from the hotel's perspective that it can be important to make sure they have assurances that the group will perform and pay. But I think there's a balancing there between existing relationships, maybe those that are new.

Lisa Sommer Devlin:

Yeah, and that's a good point. New relationships are different than older relationships. Hotels don't want to provide services for which they will not be paid. And once those meals have been eaten and those beds have been slept in, they can't get that value back if they don't get paid.

And so they want the deposit to know that they will be paid for the services rendered. Having good history of your event is very important. Having recommendations from prior venues saying, yes, they paid within 30 days.

Yes, they didn't dispute every little charge we gave them, which will provide you with more negotiation leverage. But hotels have been burned a lot over the years, especially in the last couple of years where groups did not have the money.

And so they want to ensure they will get paid for what they are entitled to receive. So again, as Barbara says, it's a negotiation process. Try to negotiate those amounts to show that you are suitable for the money.

But some hotel chains have specific requirements to book the business, and that's just their rule, and you'll have to live with that.

Barbara Dunn:

Lisa, I just want to add the question in the chat about escrows. Certainly, you know, to the extent that it would be helpful to have a pay into a third party right when the funds are released after condition if there was a concern that the hotel might not be able to perform as well.

But in that way, I find it very rare that hotels would be willing to enter into an escrow arrangement, but I understand the concept. To me, it speaks toward, a willingness to balance it out such that there's proximity of timing to performance, where the group feels that there's going to be performance behind the money it might pay. What are your thoughts on the escrow?

Lisa Sommer Devlin:

Yeah, there are some escrow companies out there that specialize in hotel contracts. My clients have not been very receptive to that because they need to have the use of the money, they're not getting the interest on it, they're not doing all those things. Escrow companies require escrow agreements.

It costs money to use an escrow company or an escrow agreement, and I'm not seeing that getting a lot of traction in the industry. I think your better bet is negotiating the deposit amount rather than trying to do the escrow.

I do want to jump in one of the comments that says that they want clauses about hotels canceling the group and that hotels are doing that and not being responsive. Let's be clear here. Both sides always have a right to cancel an event contract.

And if you put in a clause that says you can't do that, it won't be legally enforceable. And you don't need a clause that says what the hotel will owe. If a hotel cancels your event, they owe you money.

That's the bottom line of it. Now it could be a little or a lot, depending on all the circumstances surrounding the cancellation. But if a hotel cancels you, it's breaching the contract and will owe you some damages, whether or not there's a contract clause that addresses that. Barbara, are you seeing more cancellations by hotels?

Barbara Dunn:

You know, Lisa, I always have a few in the queue, and I will say I do. At the moment, I don't know that it's a higher frequency, but to your point, this is important. Often you will see language in the contracts that say the hotel won't cancel on the group for booking another piece of business, and the group won't cancel for going to another venue.

In the end, they can do it anyway. And so the issue you and I have had this come up with, a dispute, would be whether the liquidated damage clause, the cancellation fee clause, would apply. And I think in both instances, and it was a group canceling, the hotel would want it to apply.

So I often strike those language and clients might look at me and say, why would you strike that language? And I'd say we we want to recover damages anyway, just because you they won't.  It's like having a walk clause that says we won't walk anybody, and then you would walk them anyway. So at the end of the day, I don't find those important.

I agree with you on damages. However, I would put on everybody's radar screen that hotels often try to cap or limit damages for hotel cancellation. And I always make the point to the hotels that the group has no way of estimating at any given time where it could go.

So, knowing what its damages will be if the hotel cancels on it is really nothing that they can predict, nothing that they can reasonably estimate. So our position would be, look, we're prepared to say reasonable damages. We're prepared to document our damages. 

We'll work with you if you have alternatives, but ultimately, we want to be able to recover actual damages and not be subject to a cap.

Lisa Sommer Devlin

I agree with Barbara on that.

Conclusion:

Successfully navigating the intricate realm of hotel deposits for event bookings necessitates a strategic blend of leverage, adept negotiation prowess, and a profound grasp of both parties' perspectives.

As emphasized by Barbara Dunn and Lisa Sommer Devlin, the crux of fruitful negotiations lies in showcasing reliability and upholding impeccable payment histories.

While opting for escrow arrangements may not be the most feasible route, concentrating on haggling over deposit figures and empathizing with each party's concerns can pave the way for more equitable agreements.

By approaching these negotiations with meticulous preparation and adaptability, event planners can secure more equitable terms and cultivate robust, trusting relationships with your hotel counterparts.