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Will COVID-19 Impact Your Event Contracts With Hotels?

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October 8, 2021
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Reading time: 7 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 whether new clauses are needed for your event contracts due to COVID-19. Check out what Barbara Dunn and Lisa Sommer Devlin have to say in Legalease With the Ladies- powered by HopSkip! Like this video?

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:
Will COVID-19 impact your event contracts with hotels?

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

Barbara: I am Barbara Dunn, an attorney that represents groups.

Lisa: And this is Legalease with the Ladies powered by HopSkip. Today's video topic is whether or not new clauses should be used in event contracts as a result of the COVID 19 pandemic. Many people question the exact definition or application of the doctrine of force majeure or impossibility in their contracts. And the important thing to understand is that the law automatically steps in when a contract truly becomes impossible to perform. Obviously, until last year nobody had ever heard of COVID19. Nobody had experienced a global pandemic. And yet contracts for all kinds of things, not just in the event industry but contracts all over the world were excused as a result of being unable to participate or continue performance because of COVID 19.

So, if there's nothing in your contract about impossibility or force majeure and yet something happens that prevents that contract and going forward, you will be legally excused. Now most parties in event contracts do have a force majeure or impossibility clause that outlines when the parties are excused without further liability. But do you need a new clause as a result of COVID 19. I think you may be surprised to hear that Barbara and I tend to agree that you really don't need new clauses. Certainly, many people in the industry are suggesting new clauses directed specifically to COVID 19. Well, remember again if you can't perform, the law is going to excuse you from your contract.

So, a good example is if you've got a contract to have an event for 700 people and the local government authorities impose restrictions that say you can't have more than 50 people together in a gathering. Clearly, you can't perform that contract and you're going to be excused. If you do think that you need to have a new clause it needs to be objective and measurable. I'm seeing so many clauses saying things like, the parties will be excused in the event of epidemic or health advisory or concerns about safety. Those things are subjective and are not easily measurable and they're just going to lead to disputes. There's always epidemic, there's always pandemics. There's the measles, there's the annual influenza epidemic or pandemic.

So, putting in those terms that aren't well defined are just going to lead to problems. Instead, when new clauses are being used, I’m trying to encourage clients to have objective things like government regulations that would prevent the meeting as contracted from going forward. Anybody can look at when those things are happening and whether or not they would prevent the meeting from going forward. They should also consider having what I like to call, a go/no go date. They need to make a decision as to at what point they're going to decide whether or not the event can take place. Is it going to be 60 days or 90 days or 6 months in advance? That's subject to negotiation, but you need to have something in the contract that indicates when parties are going to decide whether or not the contract can be terminated. That's been one of the biggest issues as a result of COVID 19 is customers saying we're canceling and hotels saying it's too soon.

So, while I don't think you necessarily need a new clause in your contract, if you do, it's important to have it be objective and have dates for when decisions are going to be made. That's going to avoid a lot of disputes going forward. Barbara, what are you seeing in this arena?

Barbara: Thanks Lisa, I agree with your comments. And would say generally when a client asks, should I have new provisions in a contract due to COVID 19? My answer is it depends, what was your contract language before. Because often the groups that had what I’ll call bread and butter force majeure clauses in their contracts are in good shape. And there isn't a reason to change it. Lisa, as you focused on the so-called grocery list of all the various force majeure events, pandemics, restrictions etc. Typically, at either the beginning of that list or at the end of that list there's a catch-all statement. For example, a clause at the beginning that says including but not limited to or a clause at the end that says or any other cause beyond the party's control. Those are the so-called catch-all provisions. Those are the so-called Icelandic Volcano provisions.

Because I know a lot of groups didn't have volcanoes in their contract and yet of course an Icelandic Volcano had crippled traffic years ago. So, that's really the important part. And then Lisa your focus on the where that standard of impact is important. I know you mentioned that we're preventing performance often with a large meeting or an event. It's difficult to prove that people were actually prevented from traveling. But we do know that they would be impacted from traveling or that it would render the group commercially impracticable to perform that contract. In other words, business minds would agree not to perform that contract.

But I think one strategy you've talked about Lisa, and you and I have worked on together in contract negotiations, is a good one. And that is to give a specific go or no-go date. In other words, there's a period of time during which that clause can't be invoked. That's something that the group and the hotel can negotiate. That will alleviate a lot of the disputes that we're seeing on both sides of the aisle in terms of when a force majeure clause could be invoked due to COVID 19. So, it's something really to focus on in your contracts and think about. Another thing to focus on in contracts post COVID 19 is flexibility.

We're very fortunate to work together in the meetings industry to help one another, pull each other up during this difficult time. And that really means flexibility in contract negotiations. Groups don't know what those meetings are going to look like in future years. Just as a hotel may not know what meetings look like, what ownership concerns look like, what market conditions look like in the years forward. So, flexibility in terms of adjusting your room block, flexibility in terms of adjusting your food and beverage minimum, flexibility in terms of adjusting your function space. Those are all good things to have and to put into contracts to really have flexibility.

One clause you'll see a lot due to flexibility and it may not even be a clause is a no attrition fee clause. In other words, the group isn't responsible if it doesn't achieve its room block as is it laid out in the contract. And don't leave that to silence please. Have a specific clause that says the parties have agreed that there will not be attrition fees if the group doesn't meet their block. That's really important, and Lisa this is something I know on both sides of the aisle that you and I are on the front lines watching out for when a contract comes across your desk or your email and said, ‘This is a great deal there's no attrition.’ The first thing I always typically look for is that clause, because if it's not in there then I know it's a concern.

Lisa: As Barbara says flexibility is important as we're going forward and for the next few months hotels are going to be willing to work with customers who are having difficulty meeting their room block. But keep in mind if you put an affirmative clause in your contract that says the group will not be responsible, if it doesn't pick up all the rooms or meet the minimum commitments in the contract. You may be facing a situation in which your contract is unenforceable. By definition, a contract has to have certain minimum terms. And if there's no minimum room block, you don't really have an enforceable contract. So, customers and hotels can work together over the next few months as we start to reopen the industry. But if you expect that hotels are going to agree to no attrition clauses for 2022 and beyond, I think you're going to find out that hotels are going to push back. Because they need definite business on their books, and the no attrition clause means that it is not definite business by any means.

Barbara: Thanks Lisa. So, one reason I do share with my clients the importance of not only having a no attrition fee clause in the contract. But within that clause including a statement that the parties agree that this is negotiated as a business concession and doesn't impact the enforceability of the contract. But you could do one better on the group side. You can do things like paying a deposit even if it's a small deposit at the outset. Shows that the group has skin in the game, shows that there's intent for a binding contract. Similarly adding in the cancellation fee provision, that calls for a cancellation fee starting at the date of signature and going forward.

It's often surprising when I say that to group clients and they'd say why. And I’d say, because you want to have an enforceable contract, even if that dollar amount is low it shows that the group has skin in the game. And that is an important point at the end of the day really making sure that the contract that you work so hard on is actually a binding contract that goes forward.

Lisa: We said in our introductory video that Barbara and I agree more than we disagree. But here's one area in which we really disagree. Barbara certainly has tips and a legal argument for how you can make a contract binding even if you have a no attrition clause. But I would certainly disagree that those are going to protect you in the event that there's a problem down the road. So, that's something if you're exploring as a no attrition option that you need to be speaking with your lawyer directly to make sure that you've got everything covered.

Barbara: Lisa, sometimes what I often tell the groups as well is the next best thing to not having an attrition clause is having an attrition clause that will never come into play. Because it allows for a lot of slippage in the group pickup and it has favorable terms in terms of multipliers and everything else. I know we'll focus on room block attrition in further videos, but sometimes that can be the best way to counter all the arguments is building an attrition clause in the contract. Which might allow for that slippage, which hopefully means then that will never become an issue.

Lisa: We do agree on that. Having a very flexible attrition clause that does make a binding contract is a better solution for both sides than having a contract that affirmatively says, there will be no attrition obligation. Thank you for joining us for Legalease with the Ladies powered by HopSkip. Please leave your comments and suggestions for future video topics in the comments 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.

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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