Article
Coronavirus Decisions: Hotel and Convention Contracts
March 4, 2020
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Associations and other non-profit entities plan their conventions and meetings many years in advance. Hotel and convention contracts often are signed with little insight about every possible impactful future event. Event planners and hotel sales representatives focus their attention on meeting dates, occupancy numbers, room rates, attrition and cancellation clauses, and other similar business and event operational matters. Little attention is paid to standard “boilerplate” terms because these clauses typically are viewed as inconsequential and unlikely to be invoked.
Enter the coronavirus. As we have seen over the past several weeks, fear of this virus has gripped the entire world. Numerous communities, towns, cities, and even entire countries have been adversely affected. Severe travel restrictions have been implemented, including mandatory quarantines for travelers entering the United States. Travel alerts are being issued on a daily basis. Businesses and economies are facing unprecedented losses. And, unfortunately, conditions will likely worsen before improving.
Obviously hotels and convention centers do not want to have conferences cancelled. Equally obvious, neither do associations and non-profit entities. Yet, the coronavirus is threatening that outcome on a widescale basis. What is the recourse? Does it matter whether conferences are held in the U.S. or abroad? The answers, like so often is the time, are “it depends.”
Let’s assume your organization is planning a conference for this summer. Everything is all set. Room rates, and attrition and cancellation clauses are good. Events are scheduled properly. Vendors are ready to go. The substance of the Agenda is first-rate. A great keynote speaker is on board. A large percentage of members are registered. Your Board has commended you. You are very proud of your efforts and you “know” this will be a triumph for your entire team.
And then… disturbing news reports about the coronavirus emerge from all angles. Social media is flooded about health and safety threats. U.S. and foreign governmental officials are reacting to public health concerns. Travel restrictions and unknowns have created a frenzy. You hope this will pass so that all of your hard work can still pay off.
Inevitably, however, members start calling about cancelling attendance at the conference. Vendors are worried. Your keynote speaker does not want to get on a plane. Board members are worried about travelling as well, and also calling to ask about your plans. Everything is falling apart. This has gotten beyond your control. Your members and Board know that you are not to blame. How could you be? Yet, you know that everyone is looking to you for a solution because this situation could be detrimental to your organization’s bottom line. You think (you hope) the organization has insurance for this type of problem and you are fairly certain the organization won’t be penalized by the hotel and convention center. Doesn’t the contract afford you protection in this scenario? You recall a clause about something like this, but aren’t sure of all repercussions because you didn’t really negotiate that clause. What are you to do?
First, check to see if you have insurance coverage for business loss relating to cancellation of hotel and/or convention contracts due to health risks and communicable diseases. If you have questions about your coverage, ask your broker for clarity and confirmation. Make certain that you understand the insurance reporting requirements. Expect that relatively new policies will exclude the coronavirus.
Second, you should look at your hotel and convention center contracts, specifically at the “force majeure” and cancellation clauses. In Latin, “force majeure” means superior force. It is intended to describe an event that is “extraordinary” and beyond the control of the parties. Oftentimes, it is interpreted to mean “Acts of God,” but it is not limited to just Acts of God (such as hurricanes, earthquakes, floods, etc.). If invoked today, would the coronavirus constitute “force majeure”? It depends on the contract language. Does the contract include language about curtailment of transportation or health risks? Does it have broader language such as “other emergencies of a similar nature”? Does it offer specific instances that would be helpful? For example, if your conference attendees are largely government workers, then it is possible that the government negotiated a clause that permits the government to cancel its employees’ attendance without penalty. In that case, you should have a reciprocal right to terminate the hotel and convention contracts, and will likely be able to successfully use the “force majeure” clause as a basis for cancellation.
If your contract is limited to boilerplate “force majeure” language, such as “the parties may cancel this agreement in the event of ‘force majeure,’” you may be limited in your ability to cancel at this time. As a legal matter, it is possible but not guaranteed that you will be able to invoke the boilerplate “force majeure” clause due to a large number of attendees cancelling their plans to attend the conference. The primary question: is it an “extraordinary event beyond the control of the parties?” It seems somewhat intuitive that the coronavirus is extraordinary and, surely, beyond the parties’ control. But is it actually extraordinary? Over recent decades, the world has seen several high-profile epidemics and pandemics — think SARS, Ebola, etc. Does the fact that they appear to be happening with more frequency make them less extraordinary? Perhaps. Could you have anticipated these possibilities during your contract negotiations? Perhaps. Will foreign travel to and from the United States be treated differently than domestic travel in connection with citing “force majeure” as a basis for termination of contracts? Perhaps.
Right now, it is unclear how these disputes will turn out. Over time, if, as is anticipated, the coronavirus develops and spreads, the impact on business conferences will become more pronounced. If the future spread of the coronavirus makes it more difficult to hold the conference, it becomes more likely that you will be able to invoke the “force majeure” clause. Inevitably, there will be difficult negotiations and litigation involving these issues. Moreover, looking forward, you will need to ensure that these types of issues are negotiated heavily, with specific examples, in future contracts. Boilerplate clauses should no longer be glossed over.