Important Hotel Contract Clauses Think back to the first contracts you negotiated, did they have everything your group or organization wanted in them? Did you feel you were getting the best offer on the first draft? Or better yet, did you sign the first draft, without really taking the time to review it? If this quick trip down memory lane makes you cringe because you think back to the mistake(s) in the contract that you missed or cost your organization money (or headaches). Let s walk through some of the basics and then get into some specific clauses that will need more careful review. The Basics Contracts should be written to protect ALL parties and once signed are legally binding. It s important to note that there is not a one size fits all hotel contract. While you may find standard similar clauses between National/International flag properties (Marriott s, Hiltons, Hyatt s, etc) each property and program presents unique circumstances, thus require specific contract language for each. What you will find is that most venues use similarly titled contract clauses, but you ll always need to check the language from contract to contract not all contracts are created equal and not all contract clauses with the same heading will contain the same language. 1
In most cases, your contracting process will involve developing RFPs, reviewing and initial proposal, negotiations and contract proposal(s) development, review, editing and approval. Throughout this process, the key thing to keep in mind - Everything is Negotiable! You need to know your walk away points going in (i.e. if we don t get insert your item here then we can t do business) and where you have some give and take. It s o.k. to ask for ALL of what you think you need (or want) for your group or organization in the RFP and proposal request phase, this way you can negotiate the points or elements of the contract that are most important to your group or organization. Something important to keep in mind - be forthright in your actual needs. For example, don t pull a bait and switch don t say the room rate doesn t matter (just send me a contract) if you need a $99 room rate or your group will not be booking this property let this be known in either your RFP or in the initial proposal(s) drafting. You don t want to be wasting everyone s time, including your own if you need to start over at another property when the hotel tells you they can t offer you the rate you were looking for. By putting some of your absolute needs into the RFP you are going to be getting solid proposals from the hotels/properties interested and capable in handling your business. Click here to request a copy of a case study on getting the most ROI out of your contracts 2
Booking Status Hotels tend to look at your booking status in three different ways: Tentative piece of business that is thoroughly qualified and determined and both client and property are interested in pursuing. Make certain that your needs are addressed here. If you are just on a fishing exercise for potential areas to look into, in your site selection process, that s one thing. If you are serious about the area and are seriously considering the property, make certain that they have actually placed a hold on the space (guestroom and meeting). You don t want any surprises when you start to work through the contract negotiation process. Definite business is committed to using the property. Both parties have a fully executed contract in hand (both parties have signed). Actual the definite business has come and gone. At this point sales will review the business to see what rooms and spaces were utilized and how much money was spent on site. Also know that sales offices will speak to other properties you ve booked with to see what your actual business was in the past. Have you ever noticed that on your master bill application you are often required to list at least three properties where you have held similar events in the past? 3
Clauses to Pay Attention To Rates/Cut-off Dates Most standard clauses reference group or package rates and cut-off dates that are at least a month out from your event s start date. Most properties will not honor your group s discounted rates or packages past this cut-off and your guests may be charged rack rates and have to purchase meals ala carte from the organization. However, if you know that your group is notoriously last minute in making their reservations you want to make sure this date is as close to your start date as the hotel will allow you to go. We usually ask for between 14 and 21 days. Additionally, if you find that your group often books outside your room block you may also want to discuss rate protection clauses. Click Here for more information about rate protection clauses. Blocking Out Meeting Rooms & Room Assignments If your group or organization needs to hold specific meetings in specific rooms on property, make sure this is spelled out in your contract. Also, check your contract for language that you have an all space hold and on a 24 hour basis for all meeting rooms on site; or, that you have spelled out exactly which meetings are in which rooms and that room assignments are not to be modified by hotel staff without your consent. It may sound like overkill, but there are many properties 4
that reserve the right to move your room assignments prior to your arrival (without your consent) if the room is not filled to capacity, allowing the hotel to re-sell that room to another group. If you don t have language in the contract to the contrary this can cause all kinds of headaches for your organization especially if your final programs and signage are already at press. Cancellation Standard cancellation fees protect the hotels/venues interests. Simply stated, it says to the signer that if you cancel your program with our property by a certain date (mutually agreed upon) your organization is obligated to reimburse the facility for the lost business (or a percentage of the lost business). Check these clauses for the percentage of revenue that will be owed or if there is sliding scale based on the date of cancellation. Also, you may want to by-pass the hotel s language and select an amount that your organization would be comfortable in paying as a penalty in the unlikely event you need to cancel (that would satisfy both parties). It is vitally important to understand at what point the hotel suffer damages due to a cancellation and what are they. The closer the cancellation happens to the actual date of the event, the greater the risk of the hotel not being able to recover the lost business. Carefully review these figures. How did the hotel determine the amount of lost revenue they are anticipating? Ordering food generally does not happen until extremely close to the date of the event. As an example, if you cancel an event six month in advance of the event, the hotel should not be including food and beverage figures in a cancellation fee. Make sure that you do the math. 5
Additionally, your cancellation clauses should protect you in the event the hotel oversells their property and you are not able to have your event there as a result. Whether they ve sold the meeting space out from under you or your guestroom block. Always include provisions that will compensate you for your expenses incurred on having to re-market indicating the new property and the cost of moving the event as a whole. Attrition Standard attrition clauses are designed to reimburse the facility or venue in the event the business does not come in at the agreed upon levels. Attrition covers slippage (lower than expected usage of sleeping rooms and sometimes food and beverage). Here again, check for the amount or percentage of revenue owed if you don t meet your numbers. Click HERE for additional tips on how to reduce your attrition fees. Additionally, ask the hotel to define their projected revenues for your group (rooms and food and beverage) so you know how the attrition fees are being calculated. Click HERE for more information about food and beverage attrition. Many hotels start with one percentage and through negotiations end up with a different percentage protecting the ever changing dynamics of conference registrations. Sliding Scales Sliding scales are often attached to either the cancellation or attrition clauses (or both) and will outline the amount to be paid if the group does not meet their anticipated performance levels (this is often 6
where food and beverage is tied to sleeping room performance). Check the percentage rates and amounts carefully (and find out how they are being calculated). You can also develop your own replacement language for the sliding scale and set a dollar figure rather than a percentage. It will depend on what is most important to you in your negotiations. Some hotels may require, in the language, that you are meeting as high as 95% of your room block or F/B estimates. Never accept something that doesn t allow for a reasonable cushion, especially in this economic climate. Also remember if you do not meet your attrition percentage to review if this allows the hotel to reduce your meeting space automatically and / or charge meeting room rental as a result. It is very important to review how all clauses have direct effect on each other. Method of Payment/Billing If your organization needs to be billed after the end of the event, for whatever reason, chances are you will be required to fill out a credit application with the hotel. This typically needs to be done well in advance of your meeting in order to allow enough time to get credit approval for the estimated value of your event. If you are booking your dates years out often times this document needs to be filled out annually be sure to check your contracts clauses under method of payment or billing method to ensure that you have completed all the necessary additional paperwork or you could find yourself needing to find your Treasurer on the last day of your event to cut a check before your group leaves the property. Beware of clauses that 7
stipulate that if the hotel deems necessary, in the event they do not approve credit, full payment will be expected in advance of the program. Question who makes these decisions, when credit approval is determined, and what their criteria for credit approval is. You don t want to be caught up in a hotel basing credit approval to benefit their cash flow shortfalls. Confirmation Letters/Emails Get it all in writing! After you ve negotiated and signed your contract you may find there are key points in managing your event that need to be outlined in meetings or conference call with hotel/property staff. Following these meetings or conversations you ll want to draft a confirmation letter or email that outlines everything that was agreed upon. Why? Often hotel staff may turn over (or be reassigned to another area) between the time you sign the agreement(s) and the time your group gets on property. So many event details are settled after the contract is signed with a variety of sales or banquets and catering staff members. Having all of these details in writing will make everyone s lives simpler in that you have written back up of your meetings that can be forwarded to new contacts or new management team members that spells out the details of your event. 8