In a Contract, 'Hotel' Has Many Meanings

If your group signs a contract with the XYZ Hotel, and the contract has a clause that allows cancellation of a meeting if the hotel is in bankruptcy, foreclosure, or receivership, you might assume that it would be a fairly straightforward matter to read legal notices in the appropriate newspaper or search court records to find out if the “XYZ Hotel” is facing one of those adverse circumstances. But that is often not the case.

Define “Hotel”
Here is the problem: For some resort properties, the land may be owned by one legal entity, the building may be owned by another legal entity, and the hotel may be managed and staffed by yet another legal entity. Consequently, the question is whether “hotel” means the owner of the building, the owner of the land, or the owner of the company that is managing and staffing the hotel. Ideally, you should be able to back out if any one of those three entities goes bankrupt because the resort may no longer be able to offer the same degree of service.     

To complicate matters, some hotels sign contracts in the name of the hotel, even though it is often an “assumed business name” and the actual legal entity that owns the hotel has an entirely different name. An example is the famous Renaissance Blackstone Hotel in Chicago. There appears to be no legal entity with that name, and the hotel is reported to have had various owners over the years, including, most recently, an integrated enterprise consisting of  “Sage Hospitality Resources, LLC,” based in Denver, and another entity calling itself “Chicago Hotel Master Lessee, LLC.” If you search legal records for the name of the hotel, you may not find important information about the owners.

Another complicating factor is that some companies that own hotels may own multiple properties, which means that while an individual hotel may be in deep financial trouble, the legal entity owning the facility may have so many other profitable ventures that the owner is nowhere close to being in bankruptcy or receivership. In that case, you would want to be able to cancel the contract if the particular hotel property for your event is in financial distress, even if the legal owner, as a whole, is not in financial distress. 

Planning Considerations
The lesson is that it may not be enough to have a simple clause that allows your group to cancel if the “hotel” is in bankruptcy, foreclosure, or receivership because the word “hotel” may be far too ambiguous. Instead, for future contracts where you have concerns about the financial stability of either the property or the management company that runs the hotel, construct a carefully worded clause that allows your group to cancel if there are adverse financial actions taken against the hotel property, the legal entity owning the building and land, and/or the management company that runs the hotel. Needless to say, constructing such a clause is generally not something that a layperson should handle without legal assistance.

Ben Tesdahl, Esq. is an attorney concentrating in nonprofit, corporate, tax, and contract law, including meeting and convention law. He is with the law firm of Powers, Pyles, Sutter & Verville, P.C. in Washington, DC. He can be reached at (202) 466-6550 or [email protected]