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Force Majeure

How to Approach Force Majeure in Your Hotel Event Contracts

In this video, you’ll learn about the key things to remember about force majeure, the main elements of what makes your event a force majeure. What if Force Majeure can be claimed but the group chooses to have the event anyway? Prior to claiming Force Majeure- what needs to happen? Understand what needs to change in your force majeure clause from a hotel’s and from a group’s perspective.

Experts

Barbara Dunn (representing Groups) Partner at Barnes & Thornburg, LLP

Lisa Sommer Devlin (representing Hotels) Devlin Law Firm, P.C.

Overview

  • The law will excuse parties to a contract from their obligations if performance becomes impossible due to unanticipated circumstances beyond the parties’ control, whether or not there is a clause in the contract on the issue.
  • Contracting parties may also be excused if the contract could still technically be performed, but there is no purpose in doing so, which is known as “Commercial Frustration.”
    • Example of Commercial Frustration: is an event scheduled for Person A to give a speech. Person A is hospitalized. The event could still technically take place, but there is no reason to do so because Person A cannot be there. While the law will excuse performance in appropriate circumstances, such as when performance of the contract is “impossible,” it is very common for parties to a contract to include a clause that outlines the circumstances when performance will be excused. If the parties agree on a lesser standard for excused performance, such as “commercially impracticable,” that lesser standard will control instead of the general law. It is important to draft all terms in the clause carefully so that there will not be disputes between the parties as to whether the requirements of the clause have been met.

Group Perspective

  • It is important that the Force Majeure clause address the two requirements necessary in order to for a party to invoke the protections of the clause:
    1. that a Force Majeure event occurred and
    2. that the Force Majeure event impacted the party’s ability to perform the contract according to the standard stated in the clause, e.g., illegal, impossible or commercially impracticable.
  • Groups should ensure that the first requirement of the clause includes a “grocery list” of Force Majeure events such as Acts of God, weather, etc. And, because neither party can anticipate all Force Majeure events, the list should include a “catch all” statement at the beginning or the end of the list such as, “including, but not limited to,” or “or any other cause beyond the parties’ control.
  • If the Force Majeure event qualifies as an item on the “grocery list”, then the party must establish that the Force Majeure event meets the standard of impact. As noted above, commercially impracticable is the preferred standard for groups such that it can establish that the purpose of the meeting cannot be fulfilled (i.e., frustrated) because of the impact of the Force Majeure event.
  • Commercially impracticable is the preferred standard for groups such that it can establish that the purpose of the meeting cannot be fulfilled (i.e., frustrated) because of the impact of the Force Majeure event.
  • Groups should consider the possibility that, despite the Force Majeure event, it may choose to perform the contract at a reduced level.
    • The clause can address such a possibility and provide that the group can perform the contract at the reduced level and that the hotel would waive or proportionately reduce attrition fees for rooms and for food and beverage.

Hotel Perspective

  • The more terms that are put into a Force Majeure clause, the more opportunity the customer has to cancel the event without having to pay damages to the hotel. Therefore, hotels resist broad clauses.
  • All terms in the clause should be clearly defined. “Terrorism” can mean many things, and can happen anywhere. “Terrorist act in the city where Hotel is located” has more clarity.
  • The legal standards for excused performance are generally “illegal, impossible or commercially impracticable (another term for frustration of purpose),” therefore hotels will resist lesser undefined standards like “inadvisable” or “material impact.”
  • “Disease outbreak” or “pandemics” happen regularly, such as annual influenza, or measles, and do not prevent events from going forward. In light of COVID-19, hotels will resist those terms, but may consider terms relating to government imposed restrictions on travel or event size.
  • Political issues, like a state adopting a law that is objectionable to the customer, are not a Force Majeure under the law. Hotels will resist clauses that allow customers to cancel without payment for political reasons.