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By Kaitlin Dunn, Writer, Hospitality Sales & Marketing Association International (HSMAI)
The spread of the coronavirus has led to cancellations, travel restrictions, and widespread uncertainty throughout the hospitality and travel industry. To address some of the challenges facing hospitality sales professionals during this crisis event, HSMAI presented a program in its free Confronting Coronavirus webinar series on “Legal Insight on the Pitfalls and Protocols of Hotel Sales Contracts,” featuring leading meetings industry attorney Steven M. Rudner, founder and managing partner at Rudner Law Offices. Here are key takeaways from Rudner’s presentation:
1. The spread of the virus itself does not qualify as a force majeure. According to Rudner, if you have a properly written force majeure clause, the existence of the coronavirus does not allow groups to cancel without penalty, because nothing about the coronavirus makes meetings illegal or impossible. “If we don’t hold the line and combat this fear and say that our hotels are open, so we expect you to be here,” Rudner said, “we will open up a dam we won’t be able to put back into place.”
2. That said, check the specific language in your clause to be sure. Most force majeure clauses contain phrases such as “enumerated events” or “commercially impracticable,” which both mean that it is virtually impossible to continue with an event. However, if the clause leaves it to the booking group’s discretion, or if “impractical” is used instead of “impracticable,” then the group may have a case to qualify under force majeure. Rudner advised against entering into a clause that contains such language.
3. Most cancellations are driven by fear, which doesn’t count as force majeure. A company’s internal decision to suspend travel still doesn’t rise to the level of force majeure. “You don’t get to make your own rules and create a force majeure,” said Rudner, who recalled a case in which a group canceled a booking after 9/11 due to fear of traveling. However, the Arizona Supreme Court ruled that subjective fear doesn’t excuse performance — meaning that the canceling group still had to pay for its cancellation.
4. You can’t evoke force majeure based on a forecast. Nobody knows what’s going to happen a few months from now. The only exception to this is when a clause requires notice within five days of learning of an issue. Because it’s been more than five days since the coronavirus has become a major disruptor, that would not apply in most cases, Rudner said.
5. Be careful with rebooking policies. If you allow groups to rebook, keep in mind that you will have empty hotels for months until everything is rescheduled. Require rebookings to occur within a certain timeframe with the same numbers and same attrition rate. If you allow a group to have a credit from the initial booking, require that they pay for both bookings if the second has to be canceled as well.
6. If you have to make a claim against a group, do it now. Because trials can take a year or more to go to court, a jury or judge may have a different view of a crisis situation and consider the canceling group’s action as permissible as opposed to now, when the group doesn’t have a case. “If you want to do something about a cancellation,” Rudner said, “assert your rights now and start the process of collecting.”
7. All other decisions are business decisions, not legal ones. You can choose to be more lenient with rebooking or attrition rates with one group rather than another, but Rudner cautioned against inadvertently discriminating against racial or ethnic groups. He said that it is appropriate to increase attrition rates if a high percentage of attendees are coming from an area experiencing an outbreak, but not if people are simply afraid to travel in general.
For additional questions about the coronavirus and cancellations, HSMAI members can email Steven M. Rudner at ruder@hotellawyers.com. For more resources, visit HSMAI’s Global Coronavirus Resources hub.