Making Sense of Mitigation You may be able to avoid an expensive situation if you need to cancel a meeting or your room pickup is off—make sure the cancellation and attrition clauses of your hotel contracts include a mitigation provision. Conferon’s Additional Conditions and standardized contract templates incorporate this language. What is mitigation? It is the duty the hotel has to the group to minimize its damages by reselling canceled or released rooms. It helps to make the property “whole.” These clauses usually describe liquidated damage calculations. Although a hotel is not legally obligated to agree to both liquidated damages and mitigation, a hotel will often do so in order to maintain a sense of fairness and to avoid the appearance of “double-dipping”—receiving payment both for the canceled or released rooms and for the same rooms if the hotel is successful in reselling them. Have you ever wondered how to figure out the amount due after mitigation? Contracts initiated by hotels rarely include mitigation, and the language is often vague: “If the hotel is able to sell any of the guestrooms canceled, that portion of the damages will be refunded based upon the number of guest rooms resold.” Could two people work the math on this clause and get the same result? Doubtful. Terms should also be fair: the hotel should not receive more revenue on any single day than it would have received had it been sold out on that day. If a group cancels its meeting three months out and owes 75% of unsold room revenue, the correct interpretation would be that the group owes 75% of the daily contracted room revenue or the unresold room revenue for that day, whichever is less. To determine the unsold room revenue you must subtract both occupied and out of order or complimentary rooms from the hotel's total inventory, then multiply the result by the group rate. Using the example below, here is how to calculate the group's liability for each day. Wednesday Maximum liability: 75% of 100 rooms blocked = 75 rooms that group is responsible for: 75 X $120 = $9,000 Mitigated liability: 200 rooms in hotel minus 10 rooms unavailable for sale = 190 rooms available for sale, minus 180 rooms occupied = 10 unsold rooms: 10 X $120 = $1,200 Amount Due: The group would owe the lesser of the two totals: $1,200. On this day the hotel recovered substantial damages by reselling canceled rooms: the group was responsible for 75 rooms but the hotel only had 10 rooms unsold. Thursday Maximum liability: 75% of 115 rooms blocked = 86 rooms that group is responsible for: 86 X $120 = $10,320 Mitigated liability: 200 rooms in hotel minus 6 rooms unavailable for sale = 194 rooms available for sale, minus 95 rooms occupied = 99 unsold rooms: 99 X $120 = $11,880 Amount Due: The group would owe the lesser of the two totals: $10,320. On this day the hotel was not able to recover any damages by reselling the canceled rooms: the group was responsible for 86 rooms but the hotel had more than that—99 rooms unsold. The groups total liability is $11,520 for this cancellation. ($1,200 + $10,320) The same method can be used to calculate attrition damages. If the group is responsible for 80% of the room block, just add another step to the Maximum Liability Formula: subtract the number of rooms the group actually utilized each night to arrive at the total the group is responsible for. Conferon’s language also asks the hotel to provide a city ledger report. This will show occupied as well as complimentary and out of order rooms. These easy-to-follow formulas ensure that an amicable agreement can be reached in the event that you need to cancel a meeting or your room pickup is significantly off. Robin Roth Senior Contracts Editor - Conferon