Source: Robin Roth, Senior Contracts Editor, Conferon, Inc.
E-Specs: January 7, 2002

A good rule of thumb in hotel contract review is that each important topic should be covered separately under its own clause with its own heading. Although some contract terms such as indemnification and ADA compliance need to be mutual, cancellation terms for the group and hotel should be spelled out separately. The consequences of cancellation for each party are too different for remedies to be specified in the same terms. Some associations may be expecting as much as 30 – 50% of their annual revenue from one event.

Cancellation by either party constitutes a breach of contract and according to contract law the remedy is for the non-breaching party to be "made whole" by recouping its lost profits. On the hotel side lost profits are somewhat easier to calculate since the profit margins of the hotel are generally known and these can be estimated ahead of time in the form of a percentage of lost room revenue (after taking into consideration what the hotel is able to resell). However if the hotel cancels, the damages owed to the group are harder to quantify since there are so many variables in the expenses of relocating the meeting. Expenses would include those of the group and the individual attendees and, as applicable, the exhibitors. Since some meetings generate no profit but rather are an expense, the calculation can get much more complex. For that type of meeting the long-term ROI of an event may need to be included in the computation.

For group cancellation Conferon recommends using a liquidated damages clause with a sliding scale tied to a percentage of anticipated room revenue that progresses higher as the time of cancellation gets closer to the time of the meeting. For hotel cancellation we recommend a general clause stating that the Hotel has no right to cancel or terminate this contract except for cause as specified in the contract. The exact damages owed by the hotel would then be determined through mutual agreement, arbitration or litigation. We also have a more detailed clause that specifies all the costs of relocating the meeting that would likely be awarded by a court. It states in part: "Hotel shall be liable to Group for all damages, direct and indirect, which Group may suffer, including all costs related to rescheduling the room block and function space." However this clause merely states in detail what the first clause states in general and it has less acceptance by the hotels.

(Note: This information is not intended to be "legal advice." A qualified attorney should be consulted to review all contract issues.)