Source: Robin Roth, Senior Contracts Editor, Conferon, Inc.
E-Specs: September 9, 2002

A hotelier wrote to give us feedback on the article on mitigation of damages that was in the last issue of E-Specs (August 5). In rebuttal to the assertion that attrition or cancellation charges should be calculated based on lost profit, the hotelier commented that the following items should also be taken into consideration:

1. The hotel will also lose ancillary revenues/profits (phones, restaurants, gift shop, movies, spa, etc.).
2. The hotel may lose future business (word of mouth) that would have come from the attendees.
3. Reselling canceled rooms could come at the expense of filling other available dates at the hotel.
4. The hotel may lose profit from business turned away prior to cancellation or guest room attrition.
5. The hotel’s employees may lose income. Rooms may get resold to a group that generates less F&B outlet revenue and lower gratuities.

The group’s history should dictate what would be a fair attrition clause. Room blocks must be earned by the group’s previous performance.

Another hotelier’s evaluation of the list above is that the real loss in a cancellation is the missed opportunity to capture a customer. The focus of the hotelier should be on rebooking the same or an alternate meeting for a future date, rather than pocketing the short-term dollar. Contrary to some beliefs, there are hoteliers who do not enjoy the negotiation or collection of an attrition or cancellation charge.

Conferon Response: Most legal experts in our business believe the right thing to do is to make the hotel whole by reimbursing the facility for the lost profit as opposed to lost revenue. We agree that the lost profit percentage may need to be adjusted upward at some hotels to include some ancillary areas beyond the guest rooms that you are referring to. The 75% example used in the previous E-Specs article is a standard utilized by two very large chains.

We appreciate and welcome candid feedback on all of our articles.

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