Clause & Effect: What’s New in ContractsApril 17, 2023

An exclusive Q&A with attorney Jonathan T. Howe, Founding Partner and President, Howe & Hutton Limited By
April 17, 2023

Clause & Effect: What’s New in Contracts

An exclusive Q&A with attorney Jonathan T. Howe, Founding Partner and President, Howe & Hutton Limited
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Since the pandemic, have you seen any changes in contracts relative to future COVID type of situations?

Yes, we have.  These have been in a tightening of clauses denying or limiting the ability to cancel without liability.  In other words, COVID-19 is now a known factor; and unless there is some incident which gives rise to a reason for cancellation beyond merely COVID existing or a progeny of it, cancellation can only be done with payment of a fee or as the contract may provide.  In addition, revisions in some cases will allow a rescheduling of the event with a credit of the cancellation fee being applicable to the postponed event.  If it doesn’t occur, there is no credit given, no refund.

The key here is to read your contract very carefully and to be sure you understand what it means relative to your ability to escape or minimize liability.

Have you seen much change in the ability of being able to negotiate?

Negotiations, now like always, can be stressful for both sides.  The laws of supply and demand continue to be in full force, and most particularly now as face-to-face meetings are coming back into vogue.  Although the attendance factor might be less than the pre-pandemic era, demand is exceeding supply.  Remember the last time before COVID was 2019, which was a bumper year with many expectations showing substantial increases in attendance and number of meetings.  The pandemic shot all that down.

For the most part, history is immaterial.  Basing your negotiations on what you think was done pre-Covid will find yourself in a difficult situation.

Anything else?

Strive for flexibility and review dates.  What is the ‘drop dead’ date for the event or venue?  If you need 200 days before the start date, then you need a review/decision making date set 200 days out.

Are there specific tips that you have relative to negotiating?

Yes. Obviously, you need to be extremely dutiful in your evaluation of your attendance.  Previously, we would negotiate contracts with the ability to decrease the number of room nights.  Today, I suggest you use a minimum number of room nights that you realistically believe can be filled accordingly.  Then, instead of having the ability to reduce, give yourself the ability to increase the block consistent with the negotiated rate.

Are you seeing more use of riders? 

Yes, riders continue to be an enigma in the industry.  Too often people using riders or amendments do not evaluate the ripple effect. If you change the room block for purposes of attrition, it does not change the room block for purposes of cancellation.  This is a lesson a planner recently learned when she successfully reduced her block for attrition but not cancellation. She then, in turn, was faced with the need to cancel and the hotel pursued her for the full room block based upon the initial booking.

Today, we read more and more about crime statistics.  Any suggestions how to deal with security?

Crime and safety becomes part of the risk management plan that everyone needs to consider. Too often, planners do not evaluate other aspects of the site selection requirements. What is the neighborhood? What are crime statistics? What plans and what security are in place at the venue? Remember also to consult with your insurance and security advisors as to any potential risks that may be encountered during your event. Adequate insurance coverage and upfront intelligence is the first line of defense and a major part of risk management technique.

Does your crystal ball show anything for the future?

My crystal ball is as cloudy as everyone else’s.  What is obvious in this industry is that it is cyclical.  Bank financial failings will have an impact on the hotel industry in that many of the loans and financing programs with hotels and other venues are with banks which may be facing liquidity challenges. As interest rates continue to grow, the tightening of financial resources is obvious. Of concern to me is the issue of financial stability within many hotels which had embarked upon refinancing during COVID.  Many of those are based upon adjustable-rate situations, which means that now the interest rate that was negotiated in 2020 is not the rate being paid today. Thus, margins are going to be squeezed even more and the impact on the entire industry is being felt.  Couple this with increased salary demands and the need for personnel.  Rates need to and are going up.  Performance also may suffer with cutbacks.

Is there anything else that is new when it comes to contracts?

One of the new items appearing in contracts is performance clauses. If it’s a five star hotel at the time the event is booked, the requirement is to be a five star at the time of performance. A key concern also is the amenities that would be available at the venue. If there were five restaurants at the time you signed the agreement, you may want to insist that those five restaurants will be open and available over the time of your event. Remember that many hotels today do not manage, own or operate the restaurants that are within the property. Instead, they are leaseholds.

What about housekeeping, front desk capabilities, customer service, room service, parking, etc? Service pre-COVID is not what we are seeing post-COVID. For hotels, let organizers know up front what an attendee can expect. Organizers let venues know what you must have.

What bottom line suggestions do you have? 

Today, as always, be sure to read your contract.  So often we will find that you may have read it but you do not understand it.  If you do not understand anything in your contract, be sure to ask and make sure you get a definitive answer that satisfies your inquiry.

Beware of clauses which refer to incorporation by reference of another document. If there is anything that incorporates by reference another document, be sure you read, understand and know what is required by the underlying referred to document.

Just note that events are rapidly changing.  There is no static aspect to this industry.  Being prepared and being ready to respond are your best weapons in this environment today. C&IT

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