Contracts

6 Legal Pitfalls in Hotel Contracts: A Lawyer’s Guide to What Drives Her Crazy

This is a guest post by Barbara Dunn, Attorney & Meeting Industry Expert. This article shall not be considered legal advice. Readers are advised to consult their legal counsel.

So we all have them – “pet peeves” – that is. They are the things that drive us crazy, though we often don’t want to admit them to others. Well, when it comes to hotel contracts, I have developed a certain set of pet peeves that have grown in length and importance over the years.

The following is a sampling of those pet peeves, what they are, why they are important, and how to avoid them.

Why Consistent Terminology Matters in Your Hotel Contracts

Is it a “contract” an “agreement,” or a “letter” – at the end of the day, it does not matter what you call the document – what matters is what the document says. 

Does the document include the key terms (“material”) – dates, room block, rates, etc. – and did the parties mutually agree on those terms? Assuming those elements (along with some other legal requirements — capacity to contract, consideration, etc.) are met, you have a legally binding document regardless of what it is called. 

However, when the document is “named” (typically in the introduction paragraph), that name should be used throughout the document. So once a “contract”, always a “contract”, once an “agreement”, always an “agreement”, etc. I also recommend that once a term is defined, it should be used with a capital letter, e.g., “this Group Sales Agreement (“Agreement”) is dated….” Then, thereafter, in the document, it should be referred to as “Agreement” vs. “agreement”. Similarly, references to the “group” and to the “hotel” should also be used consistently and, once defined, used with a capital letter as well, such as “XYZ Company (“Group”)” and “the Palm Tree Hotel (“Hotel”).”

While this pet peeve may seem “trivial”, there certainly is the possibility that failing to use terms consistently can expose the parties to interpretations which were not intended. 

This is particularly troublesome when it is likely that the people who negotiate the hotel contract may not be the same people when it’s time to perform the contract. If a term such as “group” is used inconsistently, for example, it opens up the possibility of the contracting group arguing that the “group” is really not the “contracting group” and, therefore, whatever obligation in the contract is not their responsibility.

Fortunately, a global search and replace feature easily avoids this pet peeve when preparing the document. But nothing substitutes for careful proofreading before the contract is signed!

How Sloppy Drafting Can Lead to Costly Contract Disputes

Wrong terms, wrong names, wrong dates – all of which I see too often in contracts. For example, if the hotel is issuing a new contract for a group and is basing it on another group’s contract, all references to the other group’s name should be updated to the new group. While some might say that we all meant that it was “this group” and not the “other group” when push comes to shove, the parties who negotiated the contract have moved on to different jobs long ago. Now, what was understood as what the parties meant was that they were arguing about it before a judge or an arbitrator.

Also, dates are often listed incorrectly – sometimes they are missing a month, day, or year, list a date from a previous contract, or include a date that has already expired. 

Again, careful proofreading is critical to ensuring that the parties understand the key dates under the contract, such as the cut-off date. 

Also, it is all too common to see gaps in dates in cancellation fee schedules. So, for example, if the cancellation fee schedule provided that the cancellation fee between the date of signing and July 31, 2020 was 25% of total room revenue and then the cancellation fee between December 31, 2020 and June 30, 2021 was 50% of total room revenue, what is the cancellation fee for the “gap period”, i.e., August 1, 2020 – December 30, 2020? I doubt the parties intended that there would be no cancellation fee during that time period, but this type of sloppy drafting exposes the hotel to the group making that very argument.

The Importance of Properly Syncing Amendments with Agreements

A term often used incorrectly in the contracting process is “addendum.” 

An addendum is a document which is attached to a contract (at the time the contract is signed) which provides further detail as to an item referenced in the contract.

For example, under “Function Space”, the contract may state that the hotel is obligated to provide the group with such function space as outlined in Addendum A to this contract. Then, Addendum A details the dates, times, room names, room sets, function type, and any fees. If, after the parties sign the contract, they want to make a change to the contract, the proper term for the “change document” is an “amendment” — not an “addendum.”

Setting aside my pet peeve on the terminology, the real issue is that when a contract is amended, the parties often do not properly amend all applicable provisions in the contract. For example, if the group reduces its room block, the amendment likely needs to include more than just the new room block. It will need to include references to all other provisions in the contract that were tied to the original room block, e.g., room block attrition and total room revenue. So if the minimum room block was listed as an exact number (let’s say 780 – the hotel is giving the group a 20% cushion for slippage) and the room block is reduced, the new minimum room block should be listed instead of 700 (the new minimum based on the 20% slippage. Otherwise, the group is bound to 780 as its minimum room block for purposes of attrition.

I had a client change the dates of its meeting – pushing the meeting three months ahead of the original meeting dates. The parties signed an amendment to the contract as to the new dates and room block, but they failed to amend the cancellation fee schedule which included dates based on the original meeting dates. As fate would have it, the group then canceled their meeting and a dispute arose over whether the cancellation fee was truly based on the original meeting dates (which would mean the group would pay a larger cancellation fee) or whether it was understood that those dates should have been adjusted as well with the date change. This dispute could have been avoided altogether with a proper review of the contract.

Bottom line, when amending a contract, look closely at each provision in the contract and ask yourself whether the change(s) being made will impact that particular provision. If so, that provision should be updated and included in the amendment.

Beware the “Dangling Counteroffer”

Many of you probably remember grade school grammar class and the dreaded “dangling participle”. Well, I now often refer to what appears to be a contract but is really as counteroffer as a “dangling counteroffer”. 

So how does this happen? 

It happens when the parties are busy negotiating the contract and fail to recognize that the document offered by the hotel and the document signed by the group are not a “mirror image” (identical) to one another. 

Remember Contracts 101, an offer has to be accepted on the exact terms it was made – otherwise, it is a counteroffer that needs to be accepted on the exact terms on which it was made.

For example, the hotel sends the group a signed contract, and the group makes handwritten changes to the contract, initials, and dates for each change, and signs the contract. The hotel receives the document back but never countersigns it — so essentially, it has not accepted the group’s counteroffer. 

Silence is not acceptance. 

What likely occurs is that the hotel sees the group’s changes and determines that they are acceptable to the hotel without communicating that to the group. 

Many years ago, I had a client who had the exact same thing happen to them. 

Signed contract from a hotel.

The group changed room blocks, rates, and other provisions. 

Signed it and sent it back to the hotel.

Then, never heard back from the hotel.

Years went by, and the parties saw one another at various conferences, all the while stating that they were looking forward to meeting at the hotel. 

Then, one year out, a new board of directors comes on for the group, and they determine that they don’t want to have their meeting at the hotel and instead want to move their meeting to another hotel – thereby raising the question, “How much is the cancellation fee?.” When I received the “contract” in order to answer this question, I noted right away that the parties did not have a contract: they had a dangling counteroffer. 

The hotel never countersigned the contract.

So we took the position that the group was “withdrawing its counteroffer” and gave notice to the hotel. The hotel challenged the group and sought cancellation fees, which it claimed were due under the contract. However, the hotel could not enforce those damages because there was no contract. The parties resolved the dispute, but ultimately, if challenged, a judge or arbitrator would likely review the facts and take the position that the parties “believed” they had a contract and that “belief” was enough to entitle the hotel to monetary damages for the group’s cancellation. Still, those damages would likely be much less than the cancellation fees listed in the hotel contract if it had been a true contract. 

Turning One-Way Street Provisions into Two-Way Agreements

Hotel contracts are often fraught with provisions such as “hotel reserves the right to…..reassign function space, raise prices, reduce the room block, etc.” Essentially, it’s a one-way street – the hotel has the unilateral right to do something to the group without the group’s permission. 

So, the goal is to revise all “one-way street” provisions to “two-way street” provisions by changing provisions such as “reserves the right to reassign group’s function space” to “the hotel may reassign group’s function space if the group gives the hotel consent to do so.”

The key with any change is to have the mutual agreement of the parties, but if the contract allows for a one-way street, that one-way street is enforceable.

Why Handwritten Changes on Contracts Can Put Your Event at Risk

Last, it should go without saying that my top pet peeve is handwritten changes on a contract. 

While handwritten changes, if done properly, may be enforceable, the likelihood is that they are not enforceable.

Why?

Because often the handwritten changes are not countersigned by the hotel (thereby becoming a dangling counteroffer as noted above) or the changes are illegible (and the person who made the changes no longer works for the group). 

The bottom line is that if you have handwritten changes, ask that the contract be updated to reflect them. The goal is to have one clean contract that both parties can follow and enforce.

So, the next time you review a hotel contract, put your organization in a good position by avoiding these pet peeves of mine.

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