The improving economic environment has created a seller's market that puts hotels in the driver's seat.
Last year, the average hotel daily room rate and revenue per available room (RevPAR) was the highest ever recorded by STR, a global provider of competitive benchmarking, information services, and research to the hotel industry. Occupancy for the first quarter of 2015 was also the highest ever recorded by STR for hotels worldwide.
Jan Freitag, STR
"The industry is firing on all cylinders, and I would expect more record-breaking demand and revenue numbers for the foreseeable future," says Jan Freitag, STR's senior vice president of strategic development. According to Freitag, a 66.8 percent occupancy rate in the U.S. is the highest STR has ever recorded for March. The industry also set a record with more than 100 million rooms sold worldwide, and RevPAR increased in the U.S. for the 61st consecutive month.
This boom has put hotels in the dominant role when negotiating. Many properties now also have the luxury to be choosy when selecting which meetings to accept.
"Hotels are no longer bending over backwards to win your business," explains Brooklyn, NY-based Roxane Kramer, a global account executive at ConferenceDirect, a full-service meetings solution company. "Plus, they are tightening their contract terms. Distinctly less flexibile, hotels are writing their contracts in their best interests."
John S. Foster, Esq., an attorney and counselor at law for Foster, Jensen & Gulley, based in Atlanta, agrees, saying more of an emphasis is being placed on the business aspects of relationships -- at the expense of hospitality.
To avoid having their events get shot down by hoteliers, planners need to prepare thorough requests for proposal (RFPs) to determine who wants their business and then work with those hotels that are most interested. Experienced meeting planners are responding with highly targeted -- or "bulletproof" -- contracts that focus on the best interest of the meeting. Here's how to create one yourself.
Just as each client's needs are unique, so is each contract and it should be customized accordingly. Using a custom contract that is issued to the hotel by the client is best for a planner, says Terri Woodin, CMP, senior director of global meeting services for Granby, CO-based Meeting Sites Resource. "When the hotel issues the contract, it is typically one-sided and missing key cost savings and risk-reduction clauses," she adds. Clauses that are missing in hotel issued contracts according to Woodin include resell, so in the event of cancellation, the group and the hotel shall negotiate to establish mutually acceptable dates for a subsequent meeting to be held no later than twelve months after the original meeting dates and the hotel shall credit 50 percent of any cancellation paid against the subsequent meeting.
A published rate clause should also be included where no lower rates are offered after the contract is signed as well as a "do not walk or relocation clause." That focuses on when a hotel overbooks rooms and guests have to "walk."
In addition, attrition and cancellation clauses in hotel-issued contracts are calculated on revenue and the hotel is only entitled to its "true loss" -- which is based on profit. It is important to understand that generally damages are defined as "lost profit," not 100 percent of the revenue, says Foster. Lost profit is gross revenue minus variable expenses.
"To seal the holes for a solid, bulletproof agreement, in addition to your attorney, you need an expert advisor with real industry experience who will help you negotiate the best terms and understand the commitments and the risks involved in your contract," says Kramer, who joined ConferenceDirect 11 years ago after almost a decade in the hotel industry.
What are the main "bullets," or dangers a planner must watch out for when agreeing to a contract? The biggest problem is usually poor drafting, according to Lisa Sommer Devlin of Phoenix-based Devlin Law Firm. "The parties know what they want, but don't make it clear in their clauses," she says. "This is especially important in the financial clauses, such as rates, food and beverage minimums, performance (attrition), and cancellation. Make sure that the clauses are written so that there is no question as to what will be owed."
Since it is a seller's market right now, planners should not expect huge financial concessions or lowest-rate guarantee clauses, Sommer Devlin adds. "If your attendees are price sensitive, go to a market that can meet their expectations rather than expecting a hotel in New York City to give you a great deal for a September event," she says. "A contract is a partnership, so both parties should be getting something as well as giving something. If you try to be fair, you will get a better contract."