Protect Your Corporate Event Against Cancellation
Cancellations are a lot like attritions because it’s better to address any cancellation issues before your contract is signed. Here is a list of a couple of things you can do to deal with a cancellation situation before it occurs. Do remember that cancellations are much more severe in nature to a hotel than attrition is, so your options are much more limited.
Dealing With Cancellations Before Your Contract Is Signed
Ask for there to be no cancellation clause and be sure it states that no penalty fees be applied for cancellation. In most instances, contracts that don’t contain a “no cancellation clause” are found to be binding when it comes to revenue commitments. So it makes no sense for you to pay for the rooms you’re cancelling on top of a cancellation penalty.
The most typical approach for a cancellation clause is the graduated penalty system. This means that penalties change and increase for cancellation the closer you get to your contracted event date. For example, if you contract a hotel two years from your event date, your sliding could be something like this:
- 24-18 Months Out – No Penalty
- 18-12 Months Out – 25% of Estimated Revenue
- 12-3 Months Out – 50% of Estimated Revenue
- 3 Months Out to Arrival Day – 100% of Estimated Revenue
Ensure that the contract has a re-sell clause in it. What this means is that attrition penalties are only incurred if the hotel is not sold out. i.e. if you exceed your allowed attrition by 20% on a 100 room block, you’d be responsible for 20 rooms. But if the hotel only had 5 empty rooms on the nights of your stay, then that means that they resold 15 of your rooms and you shouldn’t be responsible under penalty for those rooms.
Ensure that your cancellation clause, if you have one, states exactly when payment is due. If your contract does contain a re-sell clause, it’s impossible to know how many rooms you’re responsible for until after the date of the event. If you don’t word your clause properly, you could end up paying for the cancellation of these rooms before you’ve even had a chance to find out your exact liability.
Penalty clauses usually call for liquidated damages equal to the amount of revenue specified in the contract including rooms, F&B and meeting room charges. Occasionally, they call for “anticipated revenue.” These kinds of charges can include spa charges, golf fees, shopping charges, internet and data usage fees, phone charges and an entire host of other charges and fees. During negotiations, if you see any anticipated charges, this should immediately throw up a red flag. This is often the hotel trying to slip in a contractual form of “wishful thinking” and is usually removed upon request. However, smaller and more high profile properties can often make a case for these charges, and in this case, just be sure that all inclusions are spelled out.
Hotels have a tendency to mislead in their contract verbiage. When you see “liquidated damages,” it usually is just a legal cover for them to charge the total revenue outlined in the contract. Any penalties that fall under this are often referred to as “lost revenue,” but should realistically be called “lost profit” because hotels make the majority of their money on rooms and not F&B. For every dollar spent on a room, as much as 75% of that total is considered profit. The opposite is true for F&B. If you cancel well enough in advance and the hotel never orders the food, then you shouldn’t be held liable for the cost of the food that was never ordered. So if you’re paying for lost F&B revenue, you’re not only covering lost profit, but you’re paying for food that was never even ordered in the first place. When negotiating these clauses, be sure to request that references to revenue be changed to profit. They may not want to, but if they want your business bad enough, they may go with it.
Dealing With Cancellations After Your Contract Is Signed
If your contract has a re-sell clause in it and you haven’t negotiated a sliding payment scale, do it now. Hotels are aware that they have an obligation regarding last room sold status. This keeps everyone engaged in monitoring the matter.
The same goes for attrition. Ask if your penalties can be applied as a cash payment towards a future meeting held within a year’s time. Though hotels may be open to this idea after the fact, they will never include this verbiage in initial contract negotiations.
Once you pay for the space, it’s yours. Try to re-sell it if you can. Seeing as most cancellations happen well in advance of the planned event time, it gives you a chance to re-sell the rooms. This can reduce damage control on your budget losses.
These are just a number of different tactics we use and recommend when planning and negotiating your contract. ISI Travel Solutions brings to light any issues we feel may cause fees or penalties down the road, and we work with the hotels and resorts to secure the contract that is best suited to your needs.
Our strategies and tactics are based on our experience and our development of best practices as a corporate event and meeting management company. We’re not lawyers and these ideas are given only as recommendations. All contracts are legal documents and any legal questions should be given to your legal counsel.