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Today’s Critical Importance of a Good Force Majeure Clause in Hotel Management Agreements.
By Joseph Fischer - Exclusive for 4Hoteliers.com
Monday, 9th January 2017
 

Exclusive Feature: Most hotel owners tend to put extra emphasis on management charges like brand fees, marketing fees, pre-opening and incentive fees, however only a few bother to look at the 'Force Majeure' clauses.

Normally, the “Force Majeure” clause is something that both parties, owners and management companies tend to leave unchanged and without updating it.

How dose a ‘standard’ short version FM clauses looks like in a lodging brand management agreement? 

“If any one or more of the following events or circumstances that, alone or in combination, adversely affects the operation of the Hotel: fire, earthquake, storm or other casualty; strikes, lockouts, or other labor interruptions; war, acts of terrorism, rebellion, riots or other civil unrest; or any other event beyond Manager's or Owner's, as the case maybe, reasonable control, a party shall be excused from performance of any provision hereof to the extent that such party's ability to comply with such provision is materially impacted by such event” 

I recall that in the mid-to-late 90’s, I was working for an international lodging company in Israel. I was in charge of both the Israeli and Palestinian. While negotiating numerous management contracts, the questions of war & terrorism attacks always came up when discussing the FM clauses. 

Unfortunately, nowadays terror has become a part of everyday life for many people around the world. People who live in cities like Istanbul, Paris, Brussels, Berlin, Cairo, Orlando and most recently Istanbul. 

These cities, and in the case of Egypt and Turkey, countries have been and are still severely affected by prolonged attacks by terrorists. 

These attacks have a long-lasting effect on occupancies and average daily rates in hotels.   

In many cases, the owners of branded hotels are not ‘covered’ by the terms of the Management Agreement. This is similar to a private person dealing with an insurance policy: when you want the money, you find out that the little print doesn't cover you. 

Friends, let's forget the legal safeguards and protection.

My conviction is that the smart, right and fair thing to do for lodging brands during such difficult times is to voluntarily get rid or differ some of the basic charges in their agreements towards better times. Incentive Fees, reservation fees, brand usage fees and marketing fees could all be wavered or deferred. 

From my experience, both from the owner's side (JV’s with Accor and STARWOOD) as well as the brand’s side, such an offer should be initiated by the lodging company. 

This could be a clear statement of solidarity and goodwill with owners as well as with the countries. 

When we talk in 15-20 years and in some cases 25-year term for a management agreement, these short-term ‘losses’ for the brand could be recouped in the future. 

Having a brand with a management/lease agreement is a form of “Marriage” and as such, sometimes, concessions need to be made.

I am fully aware that what I am suggesting here is difficult for many international hotel companies, especially since most of their profits are being generated from management services, licenses and franchise agreements. 

Again, talking from my own experience, global hotel brand companies that fail to cooperate with owners in times of crisis and despair may, and in many cases, will find themselves kicked-out, or the owners will find a reason to terminate the agreement for a multitude of reasons that his Leagal advisors will come-up with. 

For a brand, having the “right location” with a good owner should be a good enough reason to come up with reduced fees during difficult times. 

I am sure that some of the brands are actively doing this but most just wait for owners to approach them. That's wrong! 

My strong recommendation is this: be ahead of the game. Show your solidarity by initiating fee reduction and temporary fee wavers. 

Like in marriage, stay together “For Better or Worse!” and let's hope and prey for good times ahead.

Joseph - Yossi - Fischer the CEO of Vision Hospitality & Travel - international lodging & Travel Solutions

This is strictly an exclusive feature, reprints of this article in any shape or form without prior written approval from 4Hoteliers.com is not permitted.

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