Source: Robin Roth, Senior Contracts Editor
E-Specs: May 3, 2005

With the growing economy virtually every business sector has experienced mergers, acquisitions and ownership changes and the hotel industry has certainly been right in line. According to Meeting News*, 2004 was the second-most active year for these types of transactions, with 1998 still number one. Among well-known names on the move are Hyatt, Adam's Mark, Hilton and the famous Plaza Hotel.

How are your already-booked contracts affected by changes in management, ownership or franchise? The overriding concern is whether the contract is still valid. The answer is usually “yes.” Generally when a hotel is sold the new owner acquires all the assets and liabilities of the property, which include existing contracts. There is no need to sign a new contract, but there may be incentives to clients to do so. However, if the hotel will be converted to condominiums or razed, there is little recourse and the group will have to relocate its meeting.

Another concern is about the many unknowns associated with a change: possible reduced levels of service, construction or renovation, deterioration of the facility, a less-respected management company, etc. Contractual protections are needed that permit cancellation, such as:

Change in Management - In the event that Hotel undergoes a change in management company, ownership, franchise, or has filed for bankruptcy, or if foreclosure occurs, the Hotel is obligated to inform Group of this action within 30 days of receipt of notice of the aforementioned change or filing, and the Group may then, within 60 days of receipt of such notice, terminate this contract without liability.

Protection against deterioration of the facility can be included. The clause should include an objective benchmark, such as:

Hotel Warranty - Hotel warrants and agrees that over the meeting dates its facility will be in the same or better condition as it was on the date of signature of this Contract or the date of the last site inspection, whichever is earlier. The benchmark for this determination will be the Mobil star rating system.

A construction clause provides added protection:
Construction - Hotel shall promptly notify Group of any construction or remodeling to be performed in the Hotel immediately prior to or over the meeting dates and Hotel warrants that any such occurrence shall not interfere in any way with Group’s use of the Hotel. Should construction or remodeling be determined by the Group to interfere with Group’s meeting, Group will be considered to have cause to terminate this contract without liability with written notice to Hotel as long as such notice is taken within 30 days of Group’s receipt of notice of unacceptable construction or remodeling.

It is important to think through the "what ifs" for your group if there are changes in hotel administration and to protect against these possible contingencies up front at the contract stage.

*http://www.meetingnews.com/meetingnews/search/search_display.jsp?vnu_content_id=1000873570

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