Staying Fair in Trying Times:Tips for Cancelling a Hotel

Contract2012 Destinations Showcase

James M. Goldberg

Termination◦ Outside forces, events cause contract to end

Force majeure (e.g., snow storm) Change of brand Construction/renovation Unavailability of convention center

Cancellation◦ One of the parties decides to back out

Cancellation v. Termination

By the group◦ Planned attendance doesn’t materialize◦ Bad prior experience at hotel or city◦ Plans change

By the hotel◦ Honest mistake

“Double booking”◦ Get better piece of business

Why Cancel?

“There shall be no right of cancellation by Group to book the meeting in another city or another hotel in the same city, or by the Hotel to book another Group”

Meaningless!◦ There’s always a right to cancel◦ The question is how much does it cost?

“Specific performance” never ordered

Is There a Way to Protect Against Cancellation?

Liquidated damages◦ Predetermined in contract◦ Agreed to in advance by the parties

Actual damages◦ Determined after the cancellation◦ Subject to negotiation or judicial ruling

How Are Damages Measured?

Will not be enforced if the purpose is to punish the wrongdoer rather than compensate the injured party

Must meet two conditions to be enforced:◦ Amount must roughly approximate the damages

likely to be incurred by the “victim”◦ Damages must be sufficiently uncertain at time of

contract that clause will likely save both parties future difficulty of estimating damages

Liquidated Damages

Lost revenue v. lost profit◦ Sleeping room profit margin = 75%◦ Food and beverage profit margin = 40%

Ability to resell rooms, f&b◦ Affected by timing of cancellation by Group

Generally speaking, the closer to the meeting, the higher the damages

How to Measure Hotel’s Damages

Liquidated damages concept does not require mitigation, i.e., reselling rooms

Legally speaking, adding a resell provision is like trying to mix oil and water

Nevertheless, it’s common in hotel contracts

What About a “Resell” Provision?

Sounds reasonable, but runs afoul of rule requiring rough approximation of actual loss

Group’s loss is almost never the same as the hotel’s loss

Mutual/Reciprocal Liquidated Damages

Actual (or direct) damages◦ Higher sleeping room cost◦ Higher f&b cost◦ Higher cost (or lack of) concessions

Consequential (or special) damages◦ Lost profit of meeting

Must have reasonable expectation of these damages

How to Measure Group’s Damages

Staff time involved in researching, negotiating other venues◦ Rule against having “victim” put in a better

position than “victim” would have been in the event that contract performed

Attorney’s fees

What are the “Gray” Areas?

Be clear and complete in the contract

Understand that “stuff” happens

Be ready to negotiate hard

What Does a Group Do?

James M. GoldbergGoldberg & Associates, PLLC

1776 K Street, N.W.Suite 800

Washington, DC 20006202-628-2929

jimcounsel@aol.com

Questions?