In recent years,
an inordinate number of hotels
have changed hands. New ownership or management can have an impact
on the contract between the meeting planner and the property.
Here is a hypothetical situation: In March 1998, a planner books
a hotel for an event to be held in January 2001. The contracted
room rate is $145, and $75,000 is to be spent on food and beverage.
The hotel is sold in July 2000. In the process, the buyer says to
the seller, “I only want contracts that generate at least a $150
room rate, plus a minimum of $100,000 of food and beverage. I will
not honor the others.”
Unfortunately, from a legal perspective, there is little
precedent as to what happens when a new owner “just says no” to
A provision specifying that the contract must be honored by the
new owner in the event of a sale might not be enforceable. The
buyer could argue no agreement with him exists that the planner
struck the deal with the former owner, and if the planner has a
claim, it should go against the former owner.
If the new owner won’t honor the terms of the original
agreement, the law provides remedies for breach of contract in two
If damages can be computed, the courts will allow the planning
organization to recover financial losses, probably from the former
owner. In some situations, however, the court might insist the
terms and conditions of the contract be upheld. But the buyer will
contend there is no obligation to fulfill someone else’s agreement.
The court might find the planner’s only recourse is against the
seller the party who agreed to the contract initially.
Scenarios aside, what are the planner’s options if a new owner
refuses to honor a previous agreement? One doctrine of law deals
with “interference with contract.” When the buyer and seller agree
on the sale, knowing event contracts are outstanding, the courts
might view the failure of the buyer to honor the agreement as an
intentional interference with the contract between the original
owner of the hotel and the planner.
There is some precedent allowing the planner to insist that the
new owner honor the contract. The reasoning is, at the time of the
sale, the new owner understood the obligation to perform and
frustrated that obligation by refusing to assume the contract.
We include a provision in our hotel contracts stating that if the
hotel is either reflagged or sold, the meeting professional has the
right to cancel without any liability. Planners might include a
provision that the seller must consider the meeting contract an
asset to be transferred, and must require the new owner to assume
the existing contract if the event sponsor does not decide to
Such a clause makes it clear the buyer knows or should know of
the contract, and by refusing to honor it he has prevented the
event from going forward. The clause might also contain a provision
recognizing the right of the planner to insist the new owner not
only honor the original contract, but cover attorney fees and
related costs if legal action is taken.
Also, remember that when a hotel is sold or reflagged,
remodeling is certain to follow. Put terms and conditions in the
contract that address the right to cancel and to be properly
notified if any changes or remodeling might materially interfere
with the upcoming event.
While nothing can guarantee a recalcitrant buyer will not try to
cancel, these measures might make it smarter to honor an existing
deal than to back out and risk a costly court battle.Jonathan T. Howe, Esq.,
is a senior partner in the Chicago and Washington, D.C., law firm
of Howe & Hutton, Ltd., which specializes in meetings, travel
and hospitality law. Legal questions can be e-mailed to him at email@example.com.
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