Room attrition damages are probably the biggest
risk in most hotel contracts. At the peak of the economic
recession a few years ago, many hotels tried to attract new
convention business by offering to remove the room attrition
clause from the contract entirely. Even today, as the economy
has improved and hotels are seeing stronger meetings business,
it is still possible to get hotels to waive attrition.
Normally, not having an attrition clause is a really good deal,
and meeting planners can rightfully pat themselves on the back
for negotiating such an outcome. But, as you can see in at
least the two situations outlined below, having no attrition
clause can sometimes backfire and cause problems.
Deleting the Clause Completely
In some cases, hotels will simply strikethrough or delete the
attrition clause completely, but not replace it with any other
language. When this happens, the group is left with an
ambiguous contract that has a room block clause specifying the
total number of rooms being held for the group, but no other
language that talks about allowable attrition. Some hotels -
and some arbitrators - take the position that the complete
absence of an attrition clause without any other clarifying
language means that the group is responsible for 100 percent of
the rooms in the room block. To avoid this harsh outcome, any
deleted attrition clause should be replaced with very clear and
specific language stating that the group is not liable for any
room attrition damages under any circumstance. Of course, in
return for such a deal, the hotel will want to release
unreserved rooms to the general public as soon as possible, so
the cut-off date in the contract may be four or more weeks
prior to the event, rather than three weeks, as in a normal
contract with an attrition clause.
Cancellation of the Event
While rare, there are occasions when a group will need to
cancel an event for reasons beyond those allowed by the force
majeure clause. Where the contract has an attrition clause, it
is often possible to create a cancellation-damages formula that
takes into account allowable attrition. For example, if the
group was only required to fill 80 percent of its room block
under the attrition clause, then arguably, cancellation damages
should only be based on 80 percent of the room block, because
the hotel never expected the group to fill or pay for the other
20 percent of the room block even if it had fully performed the
contract by holding the meeting.
But when a contract has no attrition clause at all and the
meeting has to be canceled, many hotels take the position that
cancellation damages must be based on 100 percent of the room
block, especially if cancellation occurs prior to the cut-off
date. In other words, the fact that the contract requires no
attrition damages if the group holds the meeting does not mean
the group can walk away from the contract without liability in
a wrongful cancellation situation. Instead, cancellation
damages tend to be based on all the rooms currently being held.
Consequently, there have been cases in which cancellation
damages in a contract with no attrition clause are 20 percent
higher than they would have been if the contract had a normal
attrition clause that allowed for 20 percent attrition.
While there are strategies that can be used to alleviate this
outcome, they require proactive thinking, effective
negotiations, and careful drafting of the cancellation damages
clause. The important thing is to never assume - as many
optimistic groups do - that wrongful cancellation of the event
will never occur and that the cancellation damages clause can
be ignored.