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Chapter 5 Significant Hospitality Contracts

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Significant Hospitality Contracts

 Specific Contract Clauses  Franchise Contracts  Management Contracts  Conference Services Contracts

In This Chapter, You Will Learn: 1. Contract clauses commonly utilized in the

hospitality industry. 2. The purpose of a franchise contract (franchise

agreement). 3. The purpose of a management contract

(management operating agreement). 4. Important forms of meeting space contracts

used in lodging operations. 5. Important forms of group rooms contracts used

in lodging operations.

Specific Contract Clauses

 Franchise-related Contracts  Management Operating

Agreements  Meeting Space Contracts  Group Lodging Contracts

Specific Contract Clauses

 Legalese: Operating agreement – a contract that

details the areas of responsibilities of the owner of a business and the entity selected by the owner to operate the business. Also referred to as a “management contract.”

Specific Contract Clauses

 Legalese: Meeting Planners – A group of professionals that plan and organize meetings and events for their employers and clients.

Search the Web 5.1  Meeting Professionals International (MPI) is the

world’s largest association of meeting planning professionals, with over 20,000 members. You can learn more about this group by visiting its Web site at http://www.mpiweb.org/

 Note the large number of educational services it offers. Many of these are designed to help the members better negotiate and administer the meetings contracts they execute with the hotels they select for their meetings.

http://www.mpiweb.org/

Group Lodging Contracts

 Legalese: Clause (contract) – a distinct contract provision or stipulation.

Group Lodging Contracts

 Legalese:

Attrition – Reduction in the number of projected participants or attendees.

Essential Clauses for Providing Products and Services to Guests

1. Length of time the contract price terms exist.

2. Identification of who is authorized to modify the contract.

3. Deposit and cancellation policies. 4. Allowable attrition.

Essential Clauses for Providing Products and Services to Guests

5. Indemnification for damages. 6. Payment terms. 7. Performance standards related to

quantity.

Essential Clauses for Purchasing Products and Services to Guests

1. Payment terms. 2. Delivery or start date. 3. Completion date. 4. Performance standards.

Essential Clauses for Purchasing Products and Services to Guests

5. Licenses and permits. 6. Indemnification/Insurance. 7. Nonperformance clauses. 8. Dispute resolution terms.

Exculpatory Clauses

 Legalese: Indemnification – To make

one whole; to reimburse for a loss already incurred.

Exculpatory Clauses

 Legalese: Exculpatory clause (or contract) - A

contract, or clause in a contract, that releases one of the parties from liability for his or her wrongdoings.

Analyze the Situation 5.1 Laureen Statte was a guest at the

Vacation Inn Express, a mid-priced, limited service hotel in an urban area. When she arrived at the hotel she inquired about the availability of a workout room. Upon receiving assurances that the hotel did indeed have such an area, Ms. Statte checked into the hotel, put away her luggage, changed into workout attire and proceeded to the workout area.

Analyze the Situation 5.1 Upon entering the workout room, she

noticed a sign prominently posted near the entrance to the workout room stating: “Hotel Not Liable for Any Injuries Incurred During Workouts.”

According to her attorney, Ms. Statte lifted deadweights for approximately 10 minutes, and then mounted a treadmill.

Analyze the Situation 5.1 As an experienced treadmill user, she

started slowly, gradually increasing the treadmill's speed. Shortly after beginning the treadmill workout, Ms. Statte fell backward into a plate-glass window that was approximately 2 feet behind the treadmill. The glass shattered and shards from the glass severely injured Ms. Statte.

Analyze the Situation 5.1 Ms. Statte's attorney claimed the accident

was the fault of the hotel because the treadmill was too close to the window, and the hotel neglected to outfit the window with safety glass. As its defense, the hotel pointed out the presence of the exculpatory clause sign, clearly posted, that Ms. Statte agreed she had read prior to beginning her workout.

Analyze the Situation 5.1 1. Do you believe a guest who

has agreed to be responsible for her own injuries during a workout has also agreed to be responsible for them in the presence of significant negligence on the part of the hotel?

2. As the hotel manager, how might you resolve this dispute?

3. Could a lawsuit have been prevented?

Franchise Contracts

 Legalese: Disclosure - To reveal fully and honestly.

The Franchise Rule

 The Federal Trade Commission (FTC) is the federal agency that regulates unfair or deceptive trade practices.

 FTC developed the “Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures” in 1979; commonly known as the Franchise Rule

Revised Franchise Rule Effective July 1, 2008

 Basic disclosures  Earnings claims  Advertised claims  Franchise agreements  Refunds  Contradictory claims

Search the Web 5.2

Visit https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-

proceedings/franchise-rule

Read the entire FTC Franchise Rule (16 CFR Part 436), to familiarize yourself with its requirements, and then write a one-page bulleted summary of the rule.

https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/franchise-rule

Franchise Contracts

 Legalese: Franchise agreement – A special

hospitality contract that details the responsibilities of both parties (franchisor and franchisee) involved in the operation of a franchise.

Franchise Contracts Rights and Responsibilities of the parties under a Franchise Agreement include:

 License granted  Franchisee responsibilities  Franchisor responsibilities  Proprietary rights  Audit requirements  Indemnification and insurance requirements  Transfer of ownership policies  Termination policies  Renewal options  Relationship of the parties to the contract  Areas of protection  Terms of the agreement (start and stop dates)

Search the Web 5.3 Log on to Internet and log on to

www.hospitalitylawyer.com. 1. Select: Solutions. 2. Select: Find Academics Resources. 3. Select: Hospitality Law Textbook Support. 4. Select: Referenced Articles. 5. Select “Joint Franchisor-Franchise Relations by Robert

Zarco, Richard Barrett-Cuetara, and Andrew Loewinger Presented at the Third Annual Hospitality Law Conference”

6. Review this article, and be prepared to discuss it in class.

Franchise Contracts

 Legalese: Right of first refusal – A clause in a

contractual agreement between two parties in a business relationship in which one party, upon termination of the business relationship, can exercise the right to buy the interest of the other party before those rights can be offered for sale to another.

Management Contracts

 Legalese: Management agreement – the legal

agreement that defines the responsibilities of a business owner and the management company chosen to operate the owner’s business. Also known as a “management contract.”

Management Contracts

 Legalese: Kickback – a secret rebate of

part of a purchase price, given by the seller to the buyer in exchange for the buyer’s influence in the purchasing decision.

Search the Web 5.4 Log on to Internet and log on to

www.hospitalitylawyer.com. 1. Select: Resources. 2. Select: Solutions. 3. Select: Find Academic Resources. 4. Select: Hospitality Law Textbook Support. 5. Select: Referenced Articles. 6. Select “Management Contracts Litigation Update by

David Moseley Presented at the Third Annual Hospitality Law Conference.”

7. Review this article, and be prepared to discuss it in class.

Conference Service Contracts

 Legalese: Conference services contract – An

agreement that details the space, products, and services to be provided to a group before, during and after its meeting.

Conference Service Contracts

 Legalese: Master bill - A single folio (bill)

established for a group that includes specifically agreed-upon group charges. Sometimes called a “master folio,” “group folio,” or “group bill.”

Group Lodging Contracts  Legalese:

Cut-off date - The date on which any rooms contracted, and thus held for sale, but not yet picked up (reserved) by the group are returned to the hotel’s general rooms inventory.

Search the Web 5.5 Log on to Internet and log on to

provided by the Convention Industry Council. 6. Review this article, and be prepared to discuss it in

class.

Analyze the Situation 5.2 Melissa Lange is the convention

services director at her city’s civic (convention) center. The center has been contracted to host a large press conference to announce the intention, of the Republican senator representing her state to run for reelection. Despite Ms. Lange’s best efforts, the senator’s office is very unhappy with the physical condition of the civic center.

Analyze the Situation 5.2 “This is awful,” says the senator’s chief of

staff. “The carpet is worn and the interiors need painting. This isn’t how the center looked six years ago when we booked our re- election announcement speech. It’s too late to move the press conference now, but there is no way the senator is paying the contracted amount for this space. It’s just six years after we selected you, and now the conditions are terrible!”

Analyze the Situation 5.2 Despite the fact that the civic center is,

indeed, six years older than it was at the time of the contract signing, it is not materially different, and Ms. Lange suspects that the complaint about the condition of the facilities is merely a ploy initiated by the senator’s chief of staff to receive a reduction on the senator’s conference services bill.

Analyze the Situation 5.2 1. What would be your response to the senator’s

aide? 2. Assume that you are responsible for drafting

the contracts for all of the civic center’s space requests that are to take place five or more years in the future. What would you do to ensure that guests such as these were not, in the future, able to make the claim that the facilities they contracted for previously were not the same as those they actually received on the date of their meeting?

What Would You Do? Assume that you are the group sales

manager at the Claremont hotel. John Pingston is one of your clients. Mr. Pingston, a professional meeting planner, works for a meeting planning company that was selected by the American Society of Hospitality Teachers (ASHT) to choose a hotel for that society’s annual meeting.

What Would You Do? At your hotel, like many others, the purchase of all hotel room nights is accompanied by the awarding to the buyer of major airline frequent flier credits (points). Mr. Pingston agrees to select the Claremont for the ASHT meeting but then states that, as the person responsible for “buying” the rooms, the airline award miles that accompany the room sales should be granted to him personally rather than to the ASHT, and, in fact, he strongly implies that if he is not granted the frequent traveler airline miles, he will move the contract for the group’s 700 total room nights to one of the Claremont’s competitors.

What Would You Do?

1. Would you grant the mileage award points to Mr. Pingston? Why or why not?

What Would You Do? 2. Assume that you granted the bonus miles to Mr.

Pingston.

a. Who do you feel would be more embarrassed by the disclosure that you did so? The planner or your hotel?

b. If you decided to do so, to whom should you disclose Mr. Pingston’s “booking bonuses”?

i. The CEO of the planner’s company? ii. The ASHT board of directors? iii. The membership of the ASHT?

Rapid Review 1. List and describe those clauses essential to contracts

utilized when providing products and services to guests.

2. List and describe those clauses essential to contracts utilized when purchasing hospitality products and services.

3. Explain to potential buyers of a franchise, the importance of the “Franchise Rule.”

4. List three advantages and three disadvantages to operating a business under a franchise agreement.

Rapid Review 5. Explain the various arrangements under which

management companies operate businesses. 6. Identify potential sources of conflict you might face

if, for its owner, you operated, under a management contract, a franchised business such as a restaurant, hotel, or car rental facility.

7. Identify at least three essential contract clauses that protect a hotel when contracting to provide space and food products for a large wedding party.

Rapid Review

8. Log on to the Hospitalitylawyer.com “Best in Class” segment identified in Search The Web 5.5. When you arrive, review the terms required for ADA compliance. List the responsibilities of meeting planners, as well as the meeting venue they select, for ensuring conformity with its basic provisions.

Think about this on your way out...

Your hotel operating agreement has a performance clause that is virtually impossible to understand, even with help from the corporate office. The clause requires a calculation that doesn’t make sense so you are worried about whether you, as operator, will be able to perform to the satisfaction of the ownership without being terminated. The attorney who drafted the agreement said that negotiations were so tough with the ownership that in order to get past the performance clause wording, she deliberately made the clause confusing so the parties would ultimately need to re- negotiate in the future.

What do you do?

Chapter 5
Significant Hospitality Contracts
In This Chapter, You Will Learn:
Specific Contract Clauses
Specific Contract Clauses
Specific Contract Clauses
Search the Web 5.1
Group Lodging Contracts
Group Lodging Contracts
Essential Clauses for Providing Products and Services to Guests
Essential Clauses for Providing Products and Services to Guests
Essential Clauses for Purchasing Products and Services to Guests
Essential Clauses for Purchasing Products and Services to Guests
Exculpatory Clauses
Exculpatory Clauses
Analyze the Situation 5.1
Analyze the Situation 5.1
Analyze the Situation 5.1
Analyze the Situation 5.1
Analyze the Situation 5.1
Franchise Contracts
The Franchise Rule
Revised Franchise Rule�Effective July 1, 2008
Search the Web 5.2
Franchise Contracts
Franchise Contracts
Slide Number 27
Franchise Contracts
Management Contracts
Management Contracts
Slide Number 31
Conference Service Contracts
Conference Service Contracts
Group Lodging Contracts
Slide Number 35
Analyze the Situation 5.2
Analyze the Situation 5.2
Analyze the Situation 5.2
Analyze the Situation 5.2
What Would You Do?
What Would You Do?
What Would You Do?
What Would You Do?
Rapid Review
Rapid Review
Rapid Review
Slide Number 47