WHO HAS EARNED THE COMMISSION?

Meetings & Conventions: Planner's Portfolio February 2002
February 2002 PLANNER'S PORTFOLIO:

The Law & the Planner

By Jonathan T. Howe, Esq.


WHO HAS EARNED THE COMMISSION?

Problem: A third-party picks the site and seals the deal, then the client switches agencies

Q:A few months ago we began working with a corporate client in preparation for a conference. One of the things we did was find a venue for the event. After an extensive search and a few site inspections, we found one the client approved of. We negotiated a contract with the hotel, which the client signed. The contract states my company was to receive a 10 percent commission on all rooms booked by the client. Subsequently, the client decided not to use us to produce the conference.

Now the client is asking the hotel not to issue the 10 percent room commission to us but rather to the company. Although the hotel contract is signed by the hotel and the client, I question that they can change who gets the commission, since the hotel contract says it’s due to us.

Sal Barilla
Executive Vice President CMS Communications
Los Angeles, Calif.

A: Basically, this is a question of agency law and what we call a third-party beneficiary. Since the contract specifically provides that the first independent is to receive a 10 percent commission, while the client may terminate the agency, it cannot terminate the agency’s rights to receive a commission.In this case, the independent is a third-party beneficiary of the contract between the hotel and the client. In such cases, hotels now are very specific in requiring a statement by the client as to who is entitled to any commission. If the client decides to change who is to receive the commission, the hotel will go back to the client and say, “We will pay only one commission. You guys fight it out and make that determination.”

If the two parties cannot come to a conclusion, the hotel can place the issue before a judge. This is called an interpleader proceeding.

In this situation, it is best to have a three-way agreement in which the client agrees the independent is entitled to the commission and the hotel recognizes and acknowledges this as well.

Q:I have a contract with a major hotel chain for an event next summer. My dilemma: The hotel has informed me they are remodeling their meeting space over the dates of our event and must move us to a different hotel. There is a cancellation clause in the contract, but it is very one-sided and pertains only to our cancellation. 

What recourse do we have? Is our only option to take them to court to enforce the binding contract? If we prevailed and the hotel still canceled our event, would we be awarded damages?

The hotel currently is working on finding other space, even though they have not said so in writing. Further, they have indicated that they would pay the difference to another hotel should the new contract not measure up to our current concessions with them.

Name withheld on request

A:Obviously, the recourse would be to go to court to seek damages. The hotel, however, has said it will be mitigating against those damages by relocating the meeting to another hotel, which will substantially reduce any claim the planner might have.

What is unfortunate is that the planner did not include a clause dealing with the remodeling of the hotel, which would have allowed the group to cancel and also would place an obligation on the hotel to cover the expenses incurred in the relocation of the meeting to a property of the planner’s choice. The fact that the hotel is handling the relocation without the planner’s approval is distressing. Never include a clause that allows someone else to make a decision for you.