Big Box ContractsOctober 1, 2015

The Ins and Outs of Convention Center Leasing Agreements By
October 1, 2015

Big Box Contracts

The Ins and Outs of Convention Center Leasing Agreements
The Washington State Convention Center

The Washington State Convention Center in Seattle.

Convention centers have a reputation for being relatively inflexible when it comes to contract terms, but that’s only in comparison to the greater flexibility often shown by hoteliers. There is certainly some room to maneuver when it comes to convention center contracts, aka “leasing agreements,” and the facilities can be accommodating in view of client value and client relationships, just like hoteliers.

“I feel they are negotiable; they want to work with you,” says Buffy Levy, director, convention and trade show services, SmithBucklin. “I’ve really not had an experience where a center has said, ‘Absolutely not, we can’t honor any of the things you’ve requested.’ To me it has never been an unpleasant process.” The current seller’s market, Levy observes, has led to some convention centers requiring groups to sign farther out, but apart from that, the centers remain strongly motivated to bring in association meetings for the economic benefit of the city, and that plays into their negotiability.

“I try not to ask for every little thing, because not every little thing matters to our groups, and (the convention center) will know when you’re being unreasonable. …You need to really understand what is most important for your association.” — Buffy Levy

Negotiating a Seller’s Market

On the other hand, the seller’s market has made hotel contract negotiation overall more challenging for planners, contrary to the platitude that hoteliers are more flexible. “I am not finding it more or less difficult to negotiate convention center contracts in the current market. Hotel contracts, however, are a different story,” notes Tonia Fykes, CEM, CMP, vice president, event operations with Biotechnology Industry Organization (BIO), whose 2016 International Convention will be held at Moscone Center in San Francisco. Hotel contracts “have become increasingly difficult to negotiate,” she says, “and terms are becoming exceedingly challenging to manage. I can only hope this trend doesn’t fully transfer into the convention center space.”

One trend that does not favor the negotiability of leasing agreements has been noted by Tonya Almond, CMP, vice president, meetings and continuing education, American Academy of Pediatric Dentistry (AAPD). Contract negotiation, traditionally within the purview of the convention salesperson, has in recent years been assigned to a designated “contract administrator” at many centers, presumably to maximize the salesperson’s time. The result can be a loss of the “relationship factor” that assists planners in negotiating with the salesperson, and the process becomes more “cut and dried,” Almond feels. For one, the administrators do not seem empowered to negotiate all the terms. “If they’re supposed to be these experts on the contract, why are they still going back to legal to get some of the (requests) approved?” she questions. “What level of authority do they have to make some of the changes?”

Negotiation with state-owned centers also can be more cut and dried compared to those that are city or county owned, in the experience of Jeffrey W. Wood, meetings director for the American Institute of Chemical Engineers (AIChE). “If they’re state owned, the state wants its revenue and rates are what they are. A county or a city has a different viewpoint on the purpose for their centers, and that is to fill the sleeping rooms. So they’re much more negotiable,” Wood explains.

The negotiating party on the supplier side — a city-owned vs. state-owned center, a salesperson vs. a contract administrator — can thus make a difference as to flexibility.

Economic Impact

The leverage a buyer brings to the table is also a factor. It’s helpful to make the center aware, in quantified terms, of the kind of economic impact one’s convention represents (if the representative does not know already), as well as other benefits of hosting the event. “In addition to data referencing the economic impact of past conventions, we provide demographic information on the type of delegates who will be experiencing the city,” says Fykes. “Our list includes heads of state, CEOs/decision-makers, manager/influencers, etc. We also outline the geographic impact, as more than one-third of our attendees are from outside of the United States; this can provide a city with word-of-mouth marketing that reaches well beyond the U.S. borders.” Similarly, Almond emphasizes that attendees of the AAPD Annual Session “have a healthy income, well into the six figures, and they bring their families and office staffs. And we do a ton of social events in addition to what they spend individually.”

One also can pave the way for concessions by being willing to book the convention for more than one year at the center, and through the ability to meet on dates that are not as easy for the center to get business on, such as off-peak times. Both tactics — booking volume and booking on less desirable dates — are familiar ways of gaining leverage with hoteliers. The AAPD, for example, held its last annual session May 21-24 at the Washington State Convention Center. “We hold (our annual session) over Memorial Day weekend, and there are not many associations out there that want to meet over a holiday weekend,” says Almond.

Wood has found it helpful to highlight the relative simplicity of the AIChE Annual Meeting as a means of obtaining some leverage. “We don’t really tax the center with what we do; it’s not a complicated event. Once the conference gets going it kind of runs itself, if we’ve done our specs right, which I ensure we do,” he says.

Contract Concessions

One of the concessions Wood typically tries to obtain is to have the center lease and charge for just the space the event will actually use: “I try to have the center prorate it so that if we’re only going to use 30,000 sf out of the 50,000 sf, I only want to pay for the 30,000, and then I only want to pay for the net that’s used for commercial purposes.” Not all centers are amenable to those terms, he has found. “Some have a minimal hall rental, and what we do may fall under that.” Rental credits for a certain F&B minimum also can be negotiated, depending on factors such as the size of the group and the competitiveness of the center’s market.

Wood’s negotiation process is the first of four stages of contract review at the AIChE. Following his efforts, the contract passes to the business owner, who oversees programming and meetings together; to the controller, who focuses on the exact wording of the clauses; and lastly to the executive director, who gives the final approval.

Legal Counsel

Many associations rely on legal professionals to look over the wording after the meeting professionals have negotiated the agreement. “For me, one of the most important things is to involve the legal counsel,” says Levy. “Never sign a contract without having legal look at it, because we’re meeting and event planners, not lawyers.” Legal review focuses on the expression of clauses such as indemnification and force majeure. Indemnification, for example, is rarely mutual and must be made so through negotiation. Says Wood, “They want to be indemnified but they forget to indemnify us. But I want to be protected if one of my employees does something (negligent) onsite; I don’t want to be sued either.” Fortunately, he says, “I haven’t found a lot of resistance to (making it reciprocal).”

Similarly, one wants to ensure the force majeure clause is balanced, meaning that it excuses the group, not just the center, from performing in the case of certain specified events. Those contingencies are a common focus of contract review, and planners and legal professionals have various ideas about what should be included in the clause. Says Levy, “Suppose the clause has five or six things that are specifically spelled out, but that’s not what it is that happens that changes the world and prevents you from having your event. So we try to include the words ‘and any other cause beyond the parties’ control,’ giving us some flexibility. If the center does not agree to it, I typically ask our attorney to have a conversation with them. I find that even if they say no right up front, our lawyer and their lawyer can often work to some arrangement that our lawyer is happier with.”

“Acts of terrorism” is commonly included among the contingencies, but Wood has observed that it is often limited to terrorism in the host city. “That doesn’t cut it for us. The whole country shut down when we were attacked here in New York, for example,” he explains. The force majeure clause also should specify what percentage of attendance must be affected due to transportation curtailment for the clause to take effect. For instance, no airline shutdown may occur, but a significant amount of attendance may nonetheless be prevented due to a ground transportation problem, if many delegates are driving in. These kinds of issues, which are particular to the meeting at hand, must be discussed in formulating a fair force majeure clause.

Ancillary Fees and Charges

Ancillary fees appearing in the “Terms and Conditions,” “Rules and Regulations” or other sections of the contract also merit special attention during negotiation. A few examples follow:

Convention sponsor displays. Some convention centers charge a fee for these displays, which is usually a small percentage of the overall sponsorship amount, Fykes notes. “Due to the unique nature of our sponsorships, we typically look to have this fee waived or reduced. I find that most centers are willing to discuss each situation and work with us on an amicable solution,” she says.

Room setup and turnover. What items are included in room setup (tables, risers, podiums, water for speakers, etc.) are important to clarify. There also may be a labor charge for room turnover, such as reception to theater-style. Terms vary on this item: Sometimes one free turnover is included; in other cases only overnight shifts incur a fee; and so on. “It’s negotiable, so if you give them enough F&B, they make a percentage off the turnover charge,” Wood notes.

Medical technician. Wood has experienced at least one case where a convention center had a nonnegotiable clause requiring a medical technician present while the show is in progress. The tech is paid hourly, and the overall expense is not insignificant, says Wood. “You need to have (him present) during move in, move out, plus during the hours that the hall is open, throughout the week.”

Wi-Fi bandwidth. Which areas have free Wi-Fi, and charges for additional bandwidth in those areas must be considered in light of the group’s needs, and a planner should be prepared to explain those needs upfront. “You have to negotiate it, and they probably won’t unless they see your Wi-Fi and Internet needs all at once,” Wood advises.

F&B distribution at booths. One of Levy’s main clients is the North American Association of Food Equipment Manufacturers (NAFEM), and she once noted a contractual requirement to pay a health services fee for each booth that is distributing food or beverage. “In our case, there would be some (distribution) because exhibitors show what their equipment does. It turned out the fee was for public shows,” she relates. “But I needed to understand what the ramifications were for us.”

Service Providers

Along with ancillary fees, the contract or the policies will include information on exclusive service providers. These should be investigated not only to be aware of costs, but also to determine opportunities to use outside service providers. Assuming an exclusive service provider is not safety-related, the use of the group’s own service provider instead can sometimes be negotiated, if that would be desirable. “Let’s say it’s exclusive in-house AV and you’ve got a three-year agreement with an AV company; you’re going to want to negotiate the ability to bring in that AV company,” Levy says. She adds, “If you have an outside AV vendor, some buildings have rules about where they can store their empty crates, and so then it costs more if you have to have them moved offsite and brought back.”

Whether rigging is an exclusive, and if so, in what areas, is also important to know. “In one case the policies said rigging was exclusive in some areas, so I wanted to make sure I understood where it is,” Levy relates. “I wanted to know where can my decorator do the rigging and where do I have to use the exclusive provider to do rigging. I prefer to keep the business with our decorator; they do all the work for us.” Similarly for cleaning services: If it’s a nonexclusive, “could you have your decorator do it or is it cheaper through the building?”

Thus, from a budget-control perspective, it’s certainly worthwhile to read what can be a very extensive “Policies” or “Terms and Conditions” section in order to determine negotiation opportunities with surcharges and services.

Other aspects of the agreement that need clarification also can catch one’s eye. In reviewing contract materials for a NAFEM convention, Levy noted the statement: “Use of courtyard is granted on a case-by-case basis.” “I knew that we needed the courtyard because we were going to do all our food service out there. They said you can have it,” she says. In retrospect, the clause was “probably more of an out for them,” in case the center needed the space for some other reason. “But I didn’t know that when I was reading it.”

In it Together

In theory it’s possible to negotiate a multitude of items on a leasing agreement, from rates and F&B minimums, to clauses such as indemnification and force majeure, to special fees and exclusives. But a shrewd negotiator does not attempt to get every concession, focusing instead on those most important to the program. It’s part of maintaining a good working relationship and earning a reputation for being a fair client. “They’re in it to make money for the city, and we’re in it to do well for our association. So I always approach it like we’re in this together,” says Levy. “I try not to ask for every little thing, because not every little thing matters to our groups, and (the convention center) will know when you’re being unreasonable. So I think what is key is that for each contract, you need to really understand what is most important for your association.” AC&F

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