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Contract Cross Examination, Part 2: What’s in Your Cancellation Clause?

Attorney Tyra Hilliard answers your burning cancellation clause questions, from hotels going hypothetical to the ethics of refusing to add room resale into the contract.

Attorney, speaker, and College of Coastal Georgia professor Tyra Hilliard, Esq., PhD, CMP, was left with more questions than time to answer them during a recent MeetingsNet webinar on what she calls The Big Three contract clauses: attrition, cancellation, and force majeure.

Here is a sampling of questions related to cancellation, the second of the Big Three she tackled, along with Hilliard’s responses. (See Yes, You Do Need a Cancellation Clause for Hilliard’s explanation of the difference between actual and liquidated damages, when to use each, and a sample cancellation clause.)

I have more hotels adding in cancellation language for liquidated damages that includes business lost, higher rates they could've booked, etc. Why do they do this when a contract cannot be based on hypothetical situations?
Hilliard: To dissuade you from negotiating. Don't fall for it.

How do you suggest handling hotels that will not work with you to base cancellation clauses on lost profit instead of total revenue, as you recommend?
Hilliard: Find another hotel. Seriously. Barring that, make sure you have a very solid resell/rebooking clause and accept that you are not getting a good contract.

Related:
Contract Cross Examination, Part 1: 9 Tough Attrition Questions
8 Ways to Negotiate a Fair Attrition Clause Both Sides Can Live With
Food and Beverage Guarantees: The Other Attrition
Yes, You Do Need a Cancellation Clause
Is Your Meeting Illegal, Impossible, or Impracticable? 

What do you do if a contract's cancellation clause is at 100 percent regardless of when the event is cancelled—i.e., there is no sliding scale?
Hilliard: It depends. If the contract is very short-term (days out), I can possibly see this, although even then the profit margin on rooms is only about 75 percent, so that should be the max a planner should pay. Or sometimes hotels will charge 100 percent cancellation on rooms, but place no cancellation damages on F&B or meeting room rental. I'd calculate to see which makes more sense. Even in these circumstances, I would expect resell and rebooking language to help offset damages if rooms are resold.

Is it ethical for a hotel not to agree to resell rooms in the case of cancellation?
Hilliard: I wouldn't say it is unethical. The legal case made for not agreeing to resell is 1) it is not legally required if the contract is based on liquidated damages, and 2) there is a cost to reselling rooms, space, F&B, so crediting it back to the group doesn't allow the hotel to cover these costs. That being said, I would probably not do business with a hotel that refused to agree to resell. Always have a Plan B.

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