April 16, 2020
Negotiations between associations, hotel operators and convention centers and their attorneys are rising to front and center in many situations now regarding annual conferences and meetings as a result of COVID-19.
Jeff Tenenbaum, a managing partner of the Tenenbaum Law Group, has been at the forefront of the issue while the stakes continue to rise for both sides. He spoke in late-March about how all of this is playing out:
The Force Majeure staredown
“This is a desperate time and both sides are playing chicken. Each side waiting for the other to blink. It’s been a real stare-down. For both the venue and the association, there is so much at stake.
“The key provision in virtually every meeting contract is the ‘force majeure’ clause that allows either party to cancel the contract without penalty – including the significant cancellation fees that would otherwise apply – if certain conditions are met. Every force majeure provision is a bit different, and some are a lot more favorable to the association than others.
“Those that only permit cancellation without penalty if it is ‘illegal or impossible’ to hold the event are a lot less favorable to associations than ones that also allow cancellation if it is ‘inadvisable’ or ‘commercially impractical’ to do so.”
Waiting for the precise moment.
“A lot of associations now are going through the motions, taking the usual steps, waiting for the right time to pull the trigger on cancellation, because what matters are the facts on the ground at the moment you cancel – not what may happen afterward. There is a huge amount of strategy involved and an evaluation of circumstances – especially state and local bans on gatherings and travel – on an almost-daily basis in order to avoid expensive, sometimes crippling cancellation penalties. Timing is everything.”
No backing down.
“Some of the most recognizable, major hotel chains are generally taking a hard line on their association customers, he says, recognizing that the hotels and convention centers are under intense economic pressure as well.
“I’ve seen the proof in the writing and messaging they are using with our clients. There generally is no backing down of any kind unless the association is willing to reschedule the meeting or book a new one. Rescheduling meetings and/or booking new ones with the venues is the option-of-choice for associations with no good force majeure cancellation options – but doing so is sometimes easier said than done due to existing association conference schedules.
Will anyone even show up?
“Even when state or local government bans are lifted and conferences are legally permitted, many people will be afraid to go to meetings and events – as well as financially limited in their ability to do so. At some point, there will be pressure in many jurisdictions for governors and mayors to lift the bans for economic reasons.
“Associations that are rescheduling their meetings for later this year are trying hard to reduce minimums for sleeping room and food and beverage revenue, recognizing they likely will have significantly reduced attendance.
How do I get to break-even?
“A lot of associations never focused on the force majeure provisions in their meeting contracts with hotels, convention centers, and vendors, sometimes agreeing to provisions that were very one-sided in favor of the other party.
“Additionally, many associations did not appreciate the value of purchasing event cancellation insurance coverage for their events, or even if they did, paying the roughly 20-percent higher premium to purchase coverage for claims arising from ‘communicable disease.’ For those associations that have such coverage, presuming the insurance carriers don’t deny coverage, it can cover not only all expenses but lost profits as well. Even a successful force majeure cancellation doesn’t make up lost profits.”
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