Chapter 5 Significant Hospitality Contracts. © 2009 Stephen C. Barth P.C. and John Wiley & Sons, Inc. All Rights Reserved 2 Significant Hospitality Contracts

Chapter 5Chapter 5

Significant Significant Hospitality Hospitality ContractsContracts

2© 2009 Stephen C. Barth P.C. and John Wiley & Sons, Inc.

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Significant Hospitality ContractsSignificant Hospitality Contracts

Specific Contract ClausesSpecific Contract Clauses Franchise ContractsFranchise Contracts Management ContractsManagement Contracts Conference Service ContractsConference Service Contracts


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In This Chapter, You Will Learn:In This Chapter, You Will Learn:

1.1. Contract clauses commonly utilized in Contract clauses commonly utilized in hospitality contracts.hospitality contracts.

2.2. The purpose of a franchise contract The purpose of a franchise contract (franchise agreement).(franchise agreement).

3.3. The purpose of a management contract The purpose of a management contract (management operating agreement).(management operating agreement).

4.4. Important forms of meeting space Important forms of meeting space contracts used in lodging operations.contracts used in lodging operations.

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


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Specific Contract ClausesSpecific Contract Clauses

Franchise-related ContractsFranchise-related Contracts Management Operating AgreementsManagement Operating Agreements Meeting Space ContractsMeeting Space Contracts Group Lodging ContractsGroup Lodging Contracts


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Legalese:Legalese:

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


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Legalese:Legalese:

Meeting Planners Meeting Planners – A group of – A group of professionals that plan and organize professionals that plan and organize

meetings and events for their meetings and events for their employers and clientsemployers and clients


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Search the Web 5.1Search 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 www.mpiweb.org. Note the large number of educational services they offer. 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.


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Group Lodging ContractsGroup Lodging Contracts

Legalese:Legalese:

Clause (contract) Clause (contract) – a distinct contract – a distinct contract provision or stipulationprovision or stipulation


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Essential Clauses for Providing Essential Clauses for Providing Products and Services to GuestsProducts and Services to Guests

1.1. Length of time that contract price terms Length of time that contract price terms are in existence.are in existence.

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

3.3. Deposit and cancellation policies.Deposit and cancellation policies.

4.4. Allowable attrition.Allowable attrition.


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5.5. Indemnification for damages.Indemnification for damages.6.6. Payment terms.Payment terms.7.7. Performance standards related to Performance standards related to

quantity.quantity.


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Legalese:Legalese:

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


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Legalese:Legalese:

Attrition, then, is simply the loss of previously estimated Attrition, then, is simply the loss of previously estimated guest counts. Consider, for example, the individual guest guest counts. Consider, for example, the individual guest responsible for hosting a large family reunion in his or her responsible for hosting a large family reunion in his or her city. When the guest first approaches the hotel to reserve city. When the guest first approaches the hotel to reserve sleeping rooms and space for meals, the family reunion may sleeping rooms and space for meals, the family reunion may be months away. The guest will want to know the specifics of be months away. The guest will want to know the specifics of room rates to be charged, as well as prices for meals. Both of room rates to be charged, as well as prices for meals. Both of these charges, however, may be dependent on the “pick-up,” these charges, however, may be dependent on the “pick-up,” or actual number of served guests. This is true because, in or actual number of served guests. This is true because, in most cases, the larger the number of sleeping rooms sold or most cases, the larger the number of sleeping rooms sold or meals provided, the lower the price may be. At the time of the meals provided, the lower the price may be. At the time of the contract signing, however, the actual number of guests to be contract signing, however, the actual number of guests to be served is likely unknown. The guest responsible for planning served is likely unknown. The guest responsible for planning the reunion may estimate 200 attendees when planning the the reunion may estimate 200 attendees when planning the event, but at the reunion, only 100 individuals attend. event, but at the reunion, only 100 individuals attend. Allowable attrition clauses inform both parties of the impact, Allowable attrition clauses inform both parties of the impact, on price, of a reduced number of actual guests servedon price, of a reduced number of actual guests served.


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Essential Clauses for Purchasing Essential Clauses for Purchasing Products and Services to GuestsProducts and Services to Guests

1.1. Payment terms.Payment terms.

2.2. Delivery or start date.Delivery or start date.

3.3. Completion date.Completion date.

4.4. Performance standards.Performance standards.


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Essential Clauses for Purchasing Essential Clauses for Purchasing Products and Services to GuestsProducts and Services to Guests

5.5. Licenses and permits.Licenses and permits.

6.6. Indemnification.Indemnification.

7.7. Nonperformance clauses.Nonperformance clauses.

8.8. Dispute resolution terms.Dispute resolution terms.


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Exculpatory ClausesExculpatory Clauses

Legalese:Legalese:

Indemnification Indemnification – To make one – To make one whole; to whole; to reimburse for a loss reimburse for a loss already incurred.already incurred.


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Exculpatory ClausesExculpatory Clauses

Legalese:Legalese:

Exculpatory Clause or Contract- Exculpatory Clause or Contract- A A contract (or clause in a contract) contract (or clause in a contract) that that releases one of the parties releases one of the parties from from liability for their liability for their wrongdoings.wrongdoings.


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Analyze the Situation 5.1Analyze the Situation 5.1

Laureen Statte was a guest at the Laureen Statte was a guest at the Boulder Inn, a midpriced hotel in an Boulder Inn, a midpriced hotel in an urban area. When she checked into urban area. When she checked into the hotel she inquired about the the hotel she inquired about the availability of a workout room. Upon availability of a workout room. Upon receiving assurances that the hotel receiving assurances that the hotel did indeed have such an area, Ms. did indeed have such an area, Ms. Statte checked into the hotel, put Statte checked into the hotel, put away her luggage, changed into away her luggage, changed into workout attire and proceeded to the workout attire and proceeded to the workout area.workout area.


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

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


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


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Ms. Statte's attorney claimed the Ms. Statte's attorney claimed the accident was the fault of the hotel accident was the fault of the hotel because the treadmill was too close to because the treadmill was too close to the window, and the hotel neglected to the window, and the hotel neglected to outfit the window with safety glass. As outfit the window with safety glass. As its defense, the hotel pointed out the its defense, the hotel pointed out the presence of the exculpatory clause presence of the exculpatory clause sign, which was clearly posted, and sign, which was clearly posted, and which Ms. Statte agreed that she read which Ms. Statte agreed that she read prior to beginning her workout. Who is prior to beginning her workout. Who is liable?liable?


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

2.2. Could a lawsuit have been Could a lawsuit have been prevented?prevented?


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Franchise ContractsFranchise Contracts

Legalese:Legalese:

Disclosure Disclosure - To reveal fully and - To reveal fully and honestly.honestly.


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The Franchise RuleThe Franchise Rule

Basic disclosuresBasic disclosures Earnings claimsEarnings claims Advertised claimsAdvertised claims Franchise agreementsFranchise agreements RefundsRefunds Contradictory claimsContradictory claims


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Revised Franchise RuleRevised Franchise Rule

Basic disclosuresBasic disclosures Earnings claimsEarnings claims Advertised claimsAdvertised claims Franchise agreementsFranchise agreements RefundsRefunds Contradictory claimsContradictory claims


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Search the Web 5.2Search the Web 5.2

Log on to the Internet and enter Log on to the Internet and enter www.ftc.govwww.ftc.gov..

1.1. Select: For Consumers.Select: For Consumers.

2.2. Select: Franchise and Business Select: Franchise and Business Opportunities.Opportunities.

3.3. Select: Franchise Rule Text (under Business Select: Franchise Rule Text (under Business Information: Rules and Acts).Information: Rules and Acts).

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


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Franchise Offering CircularFranchise Offering Circular

Many states treat sales of franchises Many states treat sales of franchises like securities.like securities.

Must file circular of record before Must file circular of record before selling in the state.selling in the state.


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Legalese:Legalese:

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


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Log on to Internet and log on to www.hospitalitylawyer.com.

1. Select: Resources.2. Select: Academics.3. Select “Joint Franchisor-Franchise Relations

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

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


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Legalese:Legalese:

Right of First Refusal – 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.


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Management ContractsManagement Contracts

Legalese:Legalese:

Management agreement – Management agreement – the the legal legal agreement that defines agreement that defines the the responsibilities of a responsibilities of a business business owner and the owner and the management management company company chosen to operate the chosen to operate the owner’s business. Also known as owner’s business. Also known as

a “management contract.”a “management contract.”


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Management ContractsManagement Contracts

Legalese:Legalese:

Kickback – Kickback – a secret rebate of a secret rebate of part of a part of a purchase price, purchase price, given by the given by the seller, to the seller, to the buyer, in exchange buyer, in exchange for the for the buyer’s influence in the buyer’s influence in the purchasing decisionpurchasing decision


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1. Select: Resources.2. Select: Academics.3. Select Management Contracts Litigation

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



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Conference Service ContractsConference Service Contracts

Legalese:Legalese:

Conference services contractConference services contract – An – An agreement that details the space, agreement that details the space, products, and services to be provided products, and services to be provided

to a group before, during and to a group before, during and after its after its meeting.meeting.


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Conference Service ContractsConference Service Contracts

Legalese:Legalese:

Master billMaster bill - A single folio (bill) - A single folio (bill) established for a group that established for a group that

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


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Group Lodging ContractsGroup Lodging Contracts

Legalese:Legalese:

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


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1. Select: Resources.2. Select: Academics.3. Select APEX Meeting Contracts Accepted

Practices” provided by the Convention Industry Council.



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Melissa 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 Melissa’s best efforts, the senator’s office is very unhappy with the physical condition of the Civic Center.


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Analyze the Situation 5.2Analyze 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 reelection 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!


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Analyze the Situation 5.2Analyze the Situation 5.2Despite 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 Melissa 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.

Assume that you are Melissa.


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Analyze the Situation 5.2Analyze the Situation 5.21. What would be your response to the

senator’s aide?2. Assume that Melissa is 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?


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What Would You Do?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.


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


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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?

a. 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?


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Rapid ReviewRapid 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.


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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.


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8. Log on to the Hospitalitylawyer.com “Best In Class” segment identified in this Chapter’s 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.

Documents

Chapter 5 Significant Hospitality Contracts. © 2009 Stephen C. Barth P.C. and John Wiley & Sons, Inc. All Rights Reserved 2 Significant Hospitality Contracts