As is the case with attrition, it is best to address cancellation issues prior to signing a contract. Here are some things you can do to address a cancellation situation before it occurs. Please note that meeting cancellations
are much more severe in nature and difficult to address so your options are limited.
- Ask for no cancellation clause at all. Make sure clause states there are no penalties for cancellation. In some cases, contracts without cancellation clauses have been found to be binding for all revenue commitments
outlined in the contract.
- More typical would be a contract with graduated penalties depending on the time cancellation occurs. For example, if you book a meeting two years out, a hotel contract might use a sliding scale that states that penalties be incurred once
a certain date arrives. The sliding scale might look something like this:
* 24-18 months out - No Penalty
* 18-12 months out - 25% of estimated revenue
* 12-3 months out - 50% of estimated revenue
* 3 months to arrival day -
100% of estimated revenue
Your negotiation objective should be to arrive at a timetable that is acceptable to you and your organization. What should be avoided are contracts with cancellation penalties that kick-in immediately - depending
on the time frame involved. The key to this negotiation is the ability of the hotel and the time left to resell cancelled space. They have a fiduciary duty to protect themselves in this regard.
- Any cancellation clause should have a resell clause included as well as last room phrasing as described in point #3 in the attrition section. If a property can resell any or all
of your rooms, you should not have to pay any penalties on those rooms.
- Make sure the cancellation clause states when monies are due. If your contract does contain a resell clause, nobody will know how many rooms have been resold until after the dates have occurred. If the clause is not
worded properly, you may wind up paying the hotel well in advance and not after the fact. Also, find out if the hotel actually owes you a refund. In addition, you will have to press the hotel to show you occupancy reports - something that may
be a bit more difficult once they have collected all monies owed. The best way to handle this is with a sliding scale outlining payment dates. This particular phrasing is almost always left out of a cancellation clause. Should you find
yourself in a cancellation situation, you will be glad that sliding payment scale is in place.
- Pay particular attention to any verbiage involving cancellation penalties for F&B. As is the case with attrition, the hotel is not actually losing money - they are just not getting expected revenue. A resell clause should apply to
F&B as well. As an example, if a hotel is holding a ballroom for your final night dinner and they are able resell it to a local charity for a fundraiser then that F&B (or some portion thereof) has been replaced.
- Anticipated revenue clause - see point #6 in the attrition section
- Any negotiation involving a cancellation clause will usually involve the term "liquidated damages". See point #7 in the attrition section. In terms of cancellation, this is an important point as the
dollar amounts will usually be significantly higher than what would be typical in an attrition situation. As in the case with attrition, always seek to replace the term revenue with profit.
- All contracts should have a reverse cancellation clause stating what the hotel will do if they cancel you. There should also be a change of management clause allowing you to cancel without penalty should the hotel management company