Hospitality Law
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module_four_contracts1_1.pptxLaw and the Hospitality Industry
HMGT 401 on-line Fall 2014
Judy Streeter
UMES - HRM
Module Four
Business Contracts
Chapter Four
What you need to know…
Explain the two basic types of valid business contracts.
Describe four essential components that must be present to create a valid contract.
Explain the purpose of the Uniform Commercial Code (UCC).
Describe the consequences of breaching an enforceable contract.
Legalese:
Plaintiff - The person or entity that initiates litigation against another. Sometimes also referred to as the claimant, petitioner, or applicant.
Defendant - The person or entity against which litigation is initiated. Sometimes referred to as the respondent.
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A contract is a legally binding agreement between two or more parties
Legalese: Contract
What are some examples of common hospitality contracts?
Identify 10 contracts that might involve hotel operations . Teams of 3 write 5 on the board
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Two types of valid contracts?
Written
Verbal
Legalese:
Enforceable Contract - A contract recognized as valid by the courts and subject to the court’s ability to compel compliance with its terms.
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A contract is a legally binding agreement between two or more parties
Offer
Acceptance
Consideration
Legality
Capacity
A contract is a legally binding agreement between two or more parties
Offer
Acceptance
Consideration
Legality
Capacity
Minimum age
Mental capacity
Legal entity
Authority
Is the person you are contracting with authorized to enter into the contract?
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A contract is a legally binding agreement between two or more parties
Offer
Acceptance
Consideration
Legality
Capacity
The objective of the contract must be for a legal purpose
In some cases the contract must be in writing
No duress involved
No drugs, gambling, prostitution, buying food that has not been sold---laws require certain contracts be in writing ---- land, to be performed over a year away
Duress –i.e “ if you don’t agree to my terms I’m going to close you down”
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A contract is a legally binding agreement between two or more parties
Offer
Acceptance
Consideration
Legality
Capacity
“A proposal to perform an act or to pay an amount that, if accepted, constitutes a legally valid contract.”
Example: Seller, I will deliver to your Hotels delivery dock 5 crates of oranges if you give pay me $100 plus tax upon delivery. 5 crates of oranges
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A contract is a legally binding agreement between two or more parties
Offer
Acceptance
Consideration
Legality
Capacity
“The payment/value exchanged for the promise(s) contained in a contract.”
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A contract is a legally binding agreement between two or more parties
Offer
Acceptance
Consideration
Legality
Capacity
“Unconditional agreement to the precise terms and conditions of an offer.”
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A contract is a legally binding agreement between two or more parties
Legal Acceptance
Verbal or nonverbal agreement
Acceptance of a deposit
Acceptance of partial or full payment
Agreement in writing
Legalese:
Counteroffer: “Conditional agreement to the terms and conditions of an offer that includes a change to those terms, creating a new offer.”
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Uniform Commercial Code (UCC)
Uniform Commercial Code: A model statute covering things such as the sale of goods, credit, and bank transactions.
Sales < $500. must be in writing and agreed to by both parties.
Implied Warranty of Merchantability
Suitable for buying and selling.
Fit for use and free of known defects.
Buyer must immediately inspect and notify of any discrepancies.
WHEN THINGS GO WRONG
BREACH
BREACH OF CONTRACT
Failure to keep the promises or agreements made in a contract
Legalese:
Force majeure: “greater force” – a natural or human-induced disaster, through no fault of the parties to the contract, that causes a contract to not be performed. (i.e. hurricanes, war, strikes)
Damages - Losses or costs incurred due to another’s wrongful act.
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Remedies:
Solutions a party can seek to compensate it for breach of contract by the other party
Remedies
Suit for Specific Performance
Remedies
Suit for Specific Performance
Liquidated Damages
Remedies
Suit for Specific Performance
Liquidated Damages
Economic Loss
Who resolves disputes?
Parties directly through negotiation
Arbitration
Court System
Mediation
Statute of limitations
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Resolving the dispute…
Arbitration - A process in which an agreed-upon, independent, neutral third party (the arbitrator), renders a final and binding resolution to a dispute. The decision of the arbitrator is known as the “award.”
Mediation - A process in which an appointed, neutral third party (the mediator), assists those involved in a dispute with resolving their own differences. The result of mediation, when successful, is known as the“settlement.”
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Avoid Breach of Contract….
Get it in writing
Read the contract thoroughly
Keep copies of all contract documents
Use good faith when negotiating contracts
Note and calendar time deadlines for performance
Ensure the performance of third parties
Share contract information with those who need to know and educate staff on consequences of contract breach.
Resolve ambiguities as quickly and fairly as possible
This is your job as a manager!!!
Forecasting Contract Capacity
…how many contracts for products and services during any given time period…
rounds of golf, room reservations, dinner reservations
What are some examples in the hospitality business?
Reservations….
Confirmed
Nonguaranteed
Guaranteed
Legalese:
Confirmed Reservation - A contract to provide a reservation in which the provider guarantees the guest’s reservation will be honored until a mutually agreeable time. A confirmed reservation may be either guaranteed or nonguaranteed.
Nonguaranteed Reservation - A contract to provide a confirmed reservation where no prepayment or authorization is required.
Guaranteed Reservation - A contract to provide a confirmed reservation in which the provider guarantees the guest’s reservation will be honored regardless of time of arrival, but the guest will be charged if he or she no- shows the reservation. Prepayment or payment authorization is required.
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Purpose of a Good Contract
All parties clearly understand the obligations of all parties
Parties agree up front what will happen if a party doesn’t perform
Significant Hospitality Contract
Chapter Five
What you need to know….
Describe contract clauses commonly utilized in hospitality contracts.
Explain the purpose of a franchise contract/agreement.
Explain the purpose of a management contract/agreement.
Recognize and explain the various clauses used in catering, meeting space and group rooms contracts.
Types of Specialize Contracts
Franchise-related Contracts
Management Operating Agreements
Meeting Space Contracts
Group Lodging Contracts
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Operational Structure…. “ The relationship between a business’s ownership and its management.”
Spartanburg Marriott at Renaissance Park
Owner: Southern Hospitality Group, LLC
Management Company: Winegardner & Hammons, Inc.
Franchisor: Marriott International, Inc.
Franchisee: Southern Hospitality Group
From Module Two…
The relationship is clearly established in the contract!
Types of Specialized Contracts
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”
Owner: Southern Hospitality Group, LLC
Management Company: Winegardner & Hammons, Inc.
Example: Spartanburg Marriott at Renaissance Park
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Types of Specialized Contracts
Meeting Space Contracts: details the services the facility (hotel, convention center, country club, restaurant or catering hall) will provide their guests, as well as the terms under which they will provide them.
Example: Spartanburg Marriott at Renaissance Park
Meeting Planner
Winegardner & Hammons, Inc.
(Spartanburg Marriott)
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Types of Specialized Contracts
Group Lodging Contracts: details the amount of rooms, dates, cost/discount, cancellation, and other agreements between the hotel and an individual or organization for a large number of guest rooms
Example: Spartanburg Marriott at Renaissance Park
Individual or Organization
Winegardner & Hammons, Inc.
(Spartanburg Marriott)
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Legalese
Clause (contract) – a distinct contract provision or stipulation
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Essential clauses when providing products and services…
Length of time that the contract price terms are in existence.
Identification of who is authorized to modify the contract.
Deposit and cancellation policies.
Allowable Attrition.
Indemnification for damages.
Payment terms.
Performance standards related to quantity.
Attrition – Reduction in the number of projected participants or attendees.
Essential clauses for purchasing products and services…
Payment terms
Delivery or start date
Completion date
Performance standards
Licenses and permits
Indemnification
Nonperformance clauses
Dispute resolution terms
Indemnification – To make one whole; to reimburse for a loss already incurred.
Exculpatory Clauses
….releases one of the parties from liability for his or her wrongdoings…
Operational Structure…. “ The relationship between a business’s ownership and its management.”
Spartanburg Marriott at Renaissance Park
Owner: Southern Hospitality Group, LLC
Management Company: Winegardner & Hammons, Inc.
Franchisor: Marriott International, Inc.
Franchisee: Southern Hospitality Group
From Module Two…
The relationship is clearly established in the contract!
The Hospitality Franchise
Franchise:
A contract between a parent company (franchisor) and an operating company (franchisee) to allow the franchisee to run a business with the brand name of the parent company, as long as the terms of the contract concerning methods of operation are followed.
Franchise Rule (Federal Trade Commission)
Franchise Offering Circular
Franchise agreements
Refunds
Contradictory claims
Basic disclosures
Earnings claims
Advertised claims
Franchise Agreement
Franchise Agreement
A specialized hospitality contract that details the responsibilities of both parties (franchisor and franchisee) involved in the operation of a franchise.
Example: Spartanburg Marriott at Renaissance Park
Franchisor: Marriott International, Inc.
Franchisee: Southern Hospitality Group
Management Contracts:
Management Company
An entity that, for a fee assumes responsibility for the day-to-day operation of a business
Management Agreement
Legal agreement that defines the responsibilities of the business owner and the management company chosen to operate the owner’s business. Also know as a “management contract”
Our example….Management Agreement
Owner: Southern Hospitality Group, LLC
Management Company: Winegardner & Hammons, Inc.
Example: Spartanburg Marriott at Renaissance Park
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Conference Services contracts…
An agreement that details the space, products, and services to be provided to a group before, during and after its meeting.
Meeting and Space contracts
Group Lodging contracts
Terminology to know..
Master Bill
Cut-off Date
Terms to know… contracts
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.”
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.
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Group Lodging contracts….should include
Total number of rooms and room nights
Arrival and departure dates
Negotiated group rates
Cut-off date
Reservation procedures
Complimentary rooms (if any)
Disclosure of all fees including early departure fees, no shows, etc.
Room taxes, surcharges and extra person charges
Rates applicable to rooms booked after the cut-off or reservations due date.
If rooms booked before or after the group stay dates will be counted in the total, cumulative room block.
If early departure fee, who will advise each guest of the policy and consider whether fees count toward attrition fees, if any.
How room rates will be calculated if the contract is signed prior to the establishment of the group’s final rates.
