When You Need an Attrition Clause

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.