Developing and Designing a Hotel Contract Template

Overview of a Hotel Contract Template

A hotel contract template is a pre-established legal framework designed for the purpose of formalizing agreements between hospitality service providers and their clients. The context in which this term might arise, however, may change from time to time. As has already been discuss in this piece about hotel management agreements, the hotel industry is all about business deals of all sorts, sometimes involving hotels as an organization, sometimes involving the hotels’ owners. Either way, the idea is that two parties (one of which is a hospitality service provider) outline their rights and obligations in writing so that all expectations are set ahead in a way that leaves little to question.
The resulting agreement should theoretically be more clear and enforceable because if there’s a problem, a court or other authority can step in and literally enforce the written terms of the deal. If there’s a lawsuit arising from the deal going south, you will want the most favorable contract template that you can get, so that when it comes to settlements and judgments being issued, the odds are in your favor.
One of the neat things about having a contract template is that it helps you to avoid what would otherwise be a very long and drawn out process to draft up what you need. In other words, it saves you time. Since many companies have various types of agreements they use in common situations , the main thing is the wording. It’s not necessary to recreate the wheel each time a new contract needs to be drafted. Finding the language that works is the biggest challenge.
Another benefit to having a contract template is that you often have the option of adding to and editing a contract template to fit your needs. While there are some cases when it makes sense to keep things simple and use a template without making any changes, in many cases it doesn’t. Every business negotiation is different, and the precise terms of the deal are variable, so the beauty of a template is that you can make changes when you like to the framework and the core wording that you definitely want to see in the result.
While this is valuable, in order to avoid making the document as a whole enforceable, it’s important to get a signature where both parties sign in agreement to the terms. It also avoids the situation where one party claims that they did not understand the terms and the contract "isn’t valid" for that reason. An individual who signs a contract usually can’t say that they didn’t understand the elements of the agreement that they signed without having any recourse.
In short, a contract template gives hotels and other businesses a major advantage over the kind of agreements that are simply based off of a hand shake or verbal discussion. Without clear and concrete agreements, how is anyone to know what’s really expected? Putting it down on paper is important in any industry where contracts are the expectation.

Key Elements of a Hotel Contract

To be effective, a hotel contract needs to contain a fairly extensive list of terms and conditions. As with any contract, a hotel contract can be divided into several sections: 1) the parties, 2) consideration, 3) obligations of the parties, 4) representations and warranties, 5) limitation of liability, indemnification, and insurance, 6) attorneys’ fees and costs, and 7) miscellaneous terms. To be complete, this article will cover each of those items individually.
Understanding the distinction between the parties is not only important for tailoring the terms of the contract, but it is also critical to understanding who is bound by the contract, who is protected by it, and what limitations may apply to either party.
Hotel Operator – This is the company that owns and/or manages the property operating the brand under license from a Brand Owner. The hotel operator is usually the one making representations to the purchaser.
Brand Owner – This is the entity that owns the brand and owns the trademark that the purchaser is acquiring. In other words, unless the Brand Owner and the Hotel Owner are the same, the purchaser is really entering into a contract with at least two separate entities (and perhaps three or more, depending on how the parties structure the deal).
Purchaser – This is the entity acquiring the hotel, and signing the contract. The purchaser is usually referred to as the ‘Developer’ or ‘Owner’ in the hotel contract.
Owner – When the purchaser is contracting for unbuilt or newly constructed hotels, the purchaser is usually the owner. But, if a purchaser is buying an existing hotel, then they will likely be the purchaser and not yet the owner. As such, they will need to execute an assignment and assumption of obligations with the seller of the hotel once the hotel transaction closes.
A hotel contract must contain consideration for it to be binding. Without going into a lengthy discussion of contract law, the consideration for a hotel contract is actually very straightforward. The consideration is the fees paid, and the benefits received by, each of the parties.
The obligations of the parties will dictate the contract term, brand categories or brand subcategories, use restrictions, consent rights, termination rights, and a whole host of other items.
In addition to the obligation to comply with the contract, and comply with the law, most hotel contracts also require the purchaser to make certain representations and warranties:
These items must be carefully reviewed and negotiated. Limitations of liability typically place a cap on damages for a violation of the hotel contract and designate a particular location for litigation. Indemnity provisions should be reviewed carefully because they can provide a scope broader than the hotel contract itself, which can result in personal liability for individual developers or officers of companies.
Most hotel contracts have a provision that makes the loser pay the winner on the litigation. Some hotel contracts, however, go further and make the loser also pay the attorneys’ fees and costs of the prevailing party.
This section is an opportunity to include any items that should be added to the contract specifically tailored to your deal. Some items to consider adding are:
In total, the negotiation and drafting of a hotel contract can be very complex. But, understanding the essential components is a good start.

Personalizing Your Hotel Contracts

To ensure that your contract reflects the full range of hotel services, events and customer expectations, you can make adjustments to some key provisions. The following suggestions assume you’ve previously reviewed your existing contract with an attorney who understands hospitality law and your company’s specific needs.
Types of Events and Services Although there are many areas in which you have latitude to modify language in the "Recitals" section and throughout the contract, the main items needing special attention are the types of events and services you offer. They include: 1. Use of space. This is a common problem for hotels that offer only a small number of meeting rooms and want to accommodate multiple events per day in even the tiniest space. Special wording should provide that planners need prior approval by specifying that an additional fee applies for any usage other than originally agreed upon. 2. Concessions. Generally, "concessions" are added benefits to your offerings such as free Wi-Fi or discounted banquet service fees. Be explicit about what is offered and whether it is a meaningless declaration or a negotiated item that will be deducted from your invoice. 3. Hotel-Provided Equipment and Support Services. Planners often assume that basic AV (which is not always required for room rental) is included in the base room rental fee. You need to spell out agreements regarding names of providers and payment arrangements. Be explicit about your charges for basic podiums, flip charts and microphone stands, as well as available extras that come with surcharges. 4. Food and Beverage. Planners frequently mistake blocked space requirements for concessions. Make clear in your terms and conditions that service and banquet fees will apply to food and beverage events based on estimated attendance, even if the event is downsized or canceled with little advance notice. 5. Wi-Fi. Although you offer free Wi-Fi in every hotel room, add an exception to your general Internet access terms and conditions disclaiming free Wi-Fi in meeting spaces. Be sure to add language that states that, if Internet service is included in the room rental fee or the planner wants to provide it free to attendees, your hotel staff will provide assistance.

Potential Legal Issues in a Hotel Contract

At the heart of every hotel contract is a commitment between two parties, the hotelier and the buyer, and a subsequent promise to provide value to each. In addition to complying with this quid pro quo, both parties’ interests must be protected by outlining the legal expectations between them. Although speakers at ALHI’s trade show recently identified 70 industry ‘must haves’ many are duplicative, and some are specific to the hotel industry, but as we approach the end of the year and the start of 2014 contract negotiations it is worth reviewing some legal considerations for hotel contracts:
• Governing Law: Because Section 2-341 of the New York Commercial Code governs hotels, if the hotel property is situated in the State of New York, the governing law should be New York. Both parties should agree on what law will be applied to the contract, and if litigation ensues where they will be litigated.
• Dispute Resolution: Whether it is litigation or arbitration, there should be a clear agreement over how disputes, whether between buyer and seller or between hotels within the group, will be resolved. Similarly, if discovery rights are limited and how extensive the reviews can be.
• Liability: A liability clause should set forth the limits of liability for both parties, and how much can be recovered in the event of a dispute. These limits may also incorporate indemnification language, although caution should be taken to ensure that both the buyer and seller are indemnified in case of a claim from a third party.
• Data Privacy: More and more, hotels have data subjecting them to the E.U. Safe Harbor agreement, the PCI Security Standards Council guidelines, the HIPAA policies, and other data storage and dissemination procedures. Often, international hotels are process or custodian entities acting on behalf of a data owner who may be subject to another privacy regime. It is important to address this data protection when contracting. Some may not be familiar with these requirements as they are often subject specific or specific to the corporate requirements of the hotel.

Pitfalls to Avoid in a Hotel Contract

Many times when a hotel decides to create a contract template, common pitfalls are not accounted for, which can lead to issues not only with the individual contract, but with future contracts as well. Some hotels create their own templates without the involvement of outside counsel and/or without the input of their own legal department. Whether the template has been drafted by the hotel’s in-house counsel, counsel from the brand or someone not associated with legal counsel at all, these contracts can create problems for the hotel. Many times contracts will state "the parties agree" rather than "unless otherwise agreed to by the parties". While this may seem an insignificant nuance to some, this clause could lead to a hotel having to provide amenities or incur expenses that it would otherwise not have to if the parties had agreed to exclude certain things. For example, in many cases contracts will state that a hotel is obligated to pay certain in-house charges. What those in-house charges cover can vary by property type and level of service and can have a significant impact on a hotel’s bottom line. On a number of occasions when speaking with a hotel GSA, I have come across contract templates that require a hotel to provide transfers to and from the airport; however, the contract does not specify that the attendees must be staying at the contracting property. Just depending on the level of travel, this can cost a hotel thousands of dollars when transfers are provided not only for the attendees, but also for their spouses, families and guests. This is even more pronounced for destination management companies ("DMC"s) who plan off-site activities or excursions. Typically DMC’s are not covered by the Sleeping Rooms Clause of the Master Contract, so they will negotiate a contract with the property just as the meeting planner/producer of the event. In many circumstances these agreements will not reference transportation to and from the hotel, so when it is time to actually provide the transportation, the hotel assumes (wrongly) that the DMC is paying for the transportation , and without clarification, the transportation costs are charged back to the hotel. In my experience, it is best to include a clause that all contractors of any third-party providers of products and services must enter into a contract with the hotel. Some hotels will even include clauses that limit the hotel’s flexibility in reacting to future, unforeseen events. For example, if a hotel is hosting a "practice" for one of the teams participating in a championship game in the surrounding area, and the game is played at the contracting property, what happens next? While this is an interesting twist on what would ordinarily be a routine event, if not addressed in advance, what happens to the practice? The hotel must fulfill its obligations to each of the two groups that have contracted within the overlapping time period. It would be advisable to allow the hotel to reschedule either or both events, as well as allow the hotel to relocate the group that requires the least amount of sleeping rooms to a concurrent date. Also, if there are multiple hotels owned by the same company, a good provision would be to allow the hotel to reassign the group(s) to another location, provided the reconsidered hotel is only a short distance away. While you may think these are all remote possibilities, as many event coordinators and meeting planners will tell you, the chance these types of events happen are growing, and your ability to modify your hotel contract template will ensure your hotel is covered. The more extensive negotiations are on the front end of the contractual relationship, the less the likelihood you will find yourself in contested negotiations in the future. While these are just a few of the potential pitfalls hotels encounter when negotiating contract templates, by ensuring the importance of discussing these matters with your legal department-before signing off on the typically long list of contract conditions hotels are obligated to follow- you will hopefully ensure that your hotel minimizes the impact of the agreement on its bottom line.

Hotel Contract Template Review

The following is a sample hotel contract template with example clauses and commentary about its content and construction. This review is meant to provide you insight into what your hotel contract should or should not contain, whether you design it yourself or hire a hospitality attorney to draft or review your event contract.
FOR GOOD AND VALUABLE CONSIDERATION, (the "Show Manager") is authorized, in its capacity as Show Manager for the (Event Name), (Name of Larger Event/Gathering) ("Show"), to enter into the following agreement with (Hotel Name) (hereafter "Hotel") for the convention of (Event Name) (the "Convention").
Show Manager is hereby granted the nonexclusive right to sell retail exhibits that the exclusive contract between [Show Manager] and its exhibitors permits. The hotel shall not be liable for any exhibits of other shows within the convention.
The Hotel agrees to provide the Show Manager with the following:
The Show Manager agrees to provide the following:
Show Manager agrees to accept and pay all charges made by the Hotel to the Show Manager for the above items.

• 50% deposit of the food and beverage total is due 45 days prior to the function. Final payment is due 72 hours prior to function. Menu selections must be provided at least 30 days prior to the function.
• Approximate attendance numbers are required for Banquet Event Orders no later than 30 days prior to your function. A guaranteed attendance is due 72 hours prior to your function.
• The function rooms will be set in rounds per the current industry standard unless other arrangements are made in advance in writing with Hotel’s catering department.
• All banquet function staff (i.e., chef, captain, waiter, etc.) uniforms are expected to be provided by the Hotel. Staff will maintain a standard of excellence while on-site and display a sincere and courteous demeanor while providing service.
• Menu selections are subject to substitution based on market availability.
• Wine service during dinner is limited to one bottle for every two guests.
• In the event that the final guarantee falls below 90% of the attendance figure, the set room rental charge will be adjusted to reflect the new attendance.
• A labor charge of $70.00 per hour is assessed for every function the client schedules a parking service attendant (two hour minimum charge). Hotel will select those attendants’ uniforms.
• This Agreement shall be governed by and construed in accordance with the laws of the State of California and the United States. The federal courts shall have exclusive jurisdiction over any disputes in the United States District Court for the Central District of California. If any provision of this Agreement is held invalid or unenforceable, such holding may not affect the validity or enforceability of any other provision of this agreement. This agreement constitutes the entire agreement between the parties and supersedes any prior agreements between the parties.
• Time is of the essence in this Agreement. No waiver or modification of, or amendment to this Agreement shall be effective unless made in writing signed by both of the parties hereto.
• The Hotel reserves the right to release blocked spaces at any time and without notice to Show Manager. If any dates or events are canceled by Show Manager, Show Manager agrees to make itself and its best efforts available to relocate the Convention along with its attendees and exhibitors to another venue should the Hotel be able to do so.
• Payment shall be made (and the amount due shall be adjusted) under the terms of Sections F and G of this agreement.
• In the event that any payment is not received on or before its due date, the Hotel shall have the right to assess an interest charge upon the amount of such payment until received. Such interest charge will be at the rate of 2% per month, but in no event shall such interest rate exceed the maximum legal rate under applicable law.
• The Show Manager has made no representations or warranties of any kind, either express or implied, with respect to the Hotel or Convention or the services to be provided hereunder other than as set forth in this agreement.

Takeaways and Best Practices

Having identified the components of a hotel contract template, it is then appropriate to examine the best practices. The following are the best practices:

• Contract templates are not one-size-fits-all. Given the varying venues and unique needs of individual clients, there is no single hotel contract template for every situation or for each type of contract. Even the form provided here will have to adjusted to meet your needs. Packaged sets of many forms are available through several commercial services which permit you to purchase a set of forms that may suit your business. Make sure you check with your association to see if they have discounted form contracts for members before you buy one.
• While a contract template is an important tool for the legal team, it is also a way to improve the bottom line for the company. 20 years ago, knowledgably prepared hotel contracts were sheets of paper that had to be changed every time a rate or date was changed, adding hours to a contract negotiation. Today’s hotel contracts are electronic. It is possible to prepare hotel contracts quickly, but it is also possible to lose an opportunity because of uncertainty about what the contract contains. Using the right electronic contract template minimizes your legal risk and saves time.
• Use the contract template as a basis for dealing with hotels. As you work through a contract with a hotel, keep track of where you made changes to the template agreement. If those changes are not included in the text of the contract but are reflected in the hand written changes , try to move them into the template so that your office has the active contract as part of its database.
• Be sure to put notes in the margin of the hotel contract so that you have a record of why the changes were made. For example, if you change a date from a Saturday to a Thursday, put a note in the margin that says the hotel did not have rooms available on Saturday and you wanted more rooms as well as a less expensive rate.
• Periodically review the contract templates with your lawyers and make sure they are still up to date. Contract terms that you know were once common are now prohibited by statute. If you have a clearly written contract template, you will avoid a court room battle over an issue that was settled years ago.
• Include a statement of purpose in your contract templates. Remember that you are being hired to accomplish a task. Often in corporate America, contracts are given a number and then are placed in a drawer without much thought about what you are supposed to accomplish. For example, a contract template for a locale that is intended to house a training session should incorporate a teacher’s syllabus of the course and not just be a room rental contract. With the added value of that template, you will find that the hotel will stock the rooms with the right number of televisions and books, and you will never have to make a case that your client should give you 4 ½ stars instead of 4 stars- simply because a new technology is not yet in the room.