This document discusses cancellation policies for hotel event contracts. It outlines the key differences between termination, which is caused by outside forces, and cancellation, which is a decision by one of the parties. While contracts often state there is no right to cancel, there is always a right to cancel with financial consequences. These consequences, or liquidated damages, aim to compensate the injured party for losses from the cancellation and must roughly approximate actual damages. The timing of cancellation affects how much revenue the hotel can resell. The document provides guidance on drafting clear and complete cancellation policies that consider both parties' potential losses.

1. 2012 Destinations Showcase
James M. Goldberg

2.  Termination
◦ Outside forces, events cause contract to end
 Force majeure (e.g., snow storm)
 Change of brand
 Construction/renovation
 Unavailability of convention center
 Cancellation
◦ One of the parties decides to back out

3.  By the group
◦ Planned attendance doesn’t materialize
◦ Bad prior experience at hotel or city
◦ Plans change
 By the hotel
◦ Honest mistake
 “Double booking”
◦ Get better piece of business

4.  “There shall be no right of cancellation by
Group to book the meeting in another city or
another hotel in the same city, or by the Hotel
to book another Group”
 Meaningless!
◦ There’s always a right to cancel
◦ The question is how much does it cost?
 “Specific performance” never ordered

5.  Liquidated damages
◦ Predetermined in contract
◦ Agreed to in advance by the parties
 Actual damages
◦ Determined after the cancellation
◦ Subject to negotiation or judicial ruling

6.  Will not be enforced if the purpose is to
punish the wrongdoer rather than
compensate the injured party
 Must meet two conditions to be enforced:
◦ Amount must roughly approximate the damages
likely to be incurred by the “victim”
◦ Damages must be sufficiently uncertain at time of
contract that clause will likely save both parties
future difficulty of estimating damages

7.  Lost revenue v. lost profit
◦ Sleeping room profit margin = 75%
◦ Food and beverage profit margin = 40%
 Ability to resell rooms, f&b
◦ Affected by timing of cancellation by Group
 Generally speaking, the closer to the meeting, the
higher the damages

8.  Liquidated damages concept does not require
mitigation, i.e., reselling rooms
 Legally speaking, adding a resell provision is
like trying to mix oil and water
 Nevertheless, it’s common in hotel contracts

9.  Sounds reasonable, but runs afoul of rule
requiring rough approximation of actual loss
 Group’s loss is almost never the same as the
hotel’s loss

10.  Actual (or direct) damages
◦ Higher sleeping room cost
◦ Higher f&b cost
◦ Higher cost (or lack of) concessions
 Consequential (or special) damages
◦ Lost profit of meeting
 Must have reasonable expectation of these damages

11.  Staff time involved in researching, negotiating
other venues
◦ Rule against having “victim” put in a better position
than “victim” would have been in the event that
contract performed
 Attorney’s fees

12.  Be clear and complete in the contract
 Understand that “stuff” happens
 Be ready to negotiate hard

13. James M. Goldberg
Goldberg & Associates, PLLC
1776 K Street, N.W.
Suite 800
Washington, DC 20006
202-628-2929
jimcounsel@aol.com