Trade associations, professional societies, and other nonprofits rely on meetings to conduct business, share ideas, and further their tax-exempt purposes. Meetings are often a key source—and sometimes the main source—of revenue for these nonprofits. With more opportunities for in-person meetings on the horizon, organizations are beginning to look toward planning their next events. But even before the pandemic, these events could carry unforeseen legal pitfalls capable of turning an exciting event into a costly one, sometimes for reasons beyond the organization's control.
Below, we highlight a few "must-have" provisions for limiting unexpected legal and financial liability in nonprofit meeting contracts. These provisions should always be in a nonprofit's back pocket, regardless of current events, but they also help address the lingering risks posed by COVID-19. This is not a comprehensive list of provisions in every hotel contract, but it serves to highlight some of the most common pitfalls that we see in hotel and event contracts.
- Indemnification. Indemnification provisions determine your organization's liability in the event that something goes wrong, such as a slip-and-fall at the meeting site, a case of food poisoning, or an attendee coming into contact with the virus that causes COVID-19. An indemnification provision will usually shift the risk for certain occurrences onto one of the contracting parties. Hotel or venue contracts may attempt to make the organization bear the risk of COVID-19-related injuries arising out of the event. We strongly recommend that all organizations push back on any indemnification provision that is one-sided (i.e., that pushes any risks only onto the organization, with no corresponding risks for the hotel regardless of the hotel's negligence), or that requires the organization to cover "losses" resulting from third-party actions beyond your control. For example, provisions requiring your organization to assume liability for all acts of your meeting attendees and/or vendors should be revised, and, for added protection, your organization should consider explicitly stating that your organization's obligations to indemnify will not apply to any liability related to COVID-19.
- Hotel's Duty to Resell Rooms in Attrition or Cancellation Situations. The future of travel restrictions, whether from the government, from airlines, or from attendees' employers, remains uncertain, and organizations have expressed concern about accounting for travel interruptions as they plan their events. Attrition and cancellation penalties apply when your organization is either unable to fully utilize a room block (or food and beverage commitment) or otherwise needs to cancel a contract entirely. Typically, meeting contracts will provide a scale of damages that apply irrespective of whether the hotel or meeting space is able to recoup its losses by reselling the applicable rooms/space. Inserting a "duty to mitigate" provision, under which your organization receives credit for resold rooms/space, offsetting penalties owed to the extent possible, is one of the most important steps you can take to limit potential financial liability under meeting contracts. Mitigation clauses also should contain a provision stating that any penalties, if due, will be reduced by an agreed-upon rate, such as 30% of hotel room rates, to reflect costs the hotel did not have to expend in cleaning and maintaining an empty room.
Also, it would be wise to impose a similar liquidated damages provision on the facility should it cancel on your organization, but be certain any such reciprocal provision doesn't unintentionally pick up the resell language. For example, if a hotel cancels because it lands a bigger, better meeting than yours, language simply saying that if the hotel cancels, it will owe your organization just what your organization would have owed the hotel if you had canceled, may mean they owe you nothing, since they resold all the rooms. Instead, seek to make the hotel liable for all direct and indirect damages your organization suffers as a result of the hotel's breach.
- Force Majeure. Force majeure provisions outline the circumstances under which a party may terminate the agreement, for reasons set forth in the force majeure clause, without penalty. Although force majeure provisions vary and have tended to become more complex in the wake of the pandemic, our overarching recommendations for tackling these provisions remain the same. First, review the scope of enumerated "force majeure" examples and make sure the listed examples address the COVID-19 pandemic and future health crises. The force majeure clause might refer to public health crises generally, or might specifically refer to pandemics or public health crises recognized by the Centers for Disease Control and Prevention, National Institutes of Health, World Health Organization, and/or any applicable state or local health agencies. Additionally, the listed examples should address more specific concerns that are directly applicable to your event. For example, if you are going to a location known for volatile weather, inserting "inclement weather preventing or delaying at least 25% of the meeting attendees from attending the event" as an excusable force majeure event could save your organization from significant penalties. Furthermore, we strongly recommend broadening the standard language beyond the narrow "illegal or impossible" standard to a more flexible standard, such as "any cause beyond the control of the parties making it illegal, impossible, or commercially impractical" to perform under the contract. Finally, force majeure clauses should excuse both cancellation of a contract and underperformance, such that attrition penalties would be waived in the event your organization is not able to fully meet its contract obligations. See this article from March 2020 on force majeure provisions.
- Failure to Enter into Venue Agreement/Unavailability of Venue Space. Events held at convention centers and large events that utilize multiple hotels will require your organization to execute several contracts with different parties. Even though all of these contracts are based around the same event, they stand alone, which can cause issues for your organization if the underlying event contract falls through. It is advisable for all hotel contracts to include a provision allowing your organization to back out of the contract if a deal is not reached with the venue or if venue space becomes unavailable.
- Warranty of Condition. Finally, a broad "warranty of condition" provision can greatly expand your nonprofit's ability to terminate a contract without penalty where the hotel or its quality of services significantly deteriorates between contract signing and the date of the event.
Your nonprofit can improve its negotiating position by crafting its own "model" contract, incorporating these and other favorable provisions. Leading with your own model contract will start negotiations off on the right foot, which is especially important in the event context; with tens or hundreds of thousands of dollars on the line, standard hotel and venue contract forms are never designed to protect a nonprofit's interests fully.