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Every contract should have cancellation clauses with details spelled out as much as humanly possible. You might even want to define the term "cancellation" to differentiate it from "termination." From the group's prospective here are some issues to consider:

  • Establish the rights of parties to cancel or modify terms by mutual agreement
  • If cancellation occurs for reasons unrelated to the termination clause, spell out in detail the liquidated damages due the supplier.
  • Establish a time frame or sliding scale for liquidated damages. If your group cancels 180 days out, its one rate, if they cancel 90 days out its typically a higher rate.
  • Should the cancellation fee be based on a percentage of anticipated revenue not to exceed the projected profit margin of the venue or some flat rate?
  • When calculating liquidated damages, spell out how anticipated lost revenue is calculated. Should it include or exclude local sales tax.
  • Should the calculation for liquidated damages include a provision that if a venue can replace the lost revenue with another group, your association is entitled to some reduction in liquidated damages?
  • Establish a time frame for when the cancellation fees are due and payable.

    The hotel or conference center have some overlapping concerns but from a different perspective. Their emphasis will be on lost revenue opportunities and mitigating that lost income stream. Below are concerns of the venue as it pertains to cancellation clauses;
  • Include provisions such as failure to provide facilities or failure to give reasonable assurances of its ability to provide facilities after there is a notice of foreclosure or bankruptcy.
  • Establish the rights of both parties to cancel or modify the terms.
  • If the venue cancels, what damages are owed the group.
  • How will damages to the group be calculated; is it a flat rate, a sliding scale, actual out of pocket expenses. This is an area that could get extremely complicated if a group is forced to relocate to another jurisdiction with higher room rates and food and beverage costs.
  • Specify when those damages will be paid to the group.
  • What are the venue's duties to return deposits?

There are additional myriad issues that must be accounted for when putting a contract together that could lead to exercising the cancellation clause. For example, is it appropriate to restrict a competing group from booking the hotel, conference or convention center on the same dates?

What happens if the venue decides to remodel after the contract is signed, but before the event takes place? Both parties have to determine if the construction is detrimental to the gathering in question. If construction noise becomes an issue is the group entitled to some form of compensation.

What is due the group if the quality of the facilities deteriorates? How about if the meeting is dependent upon some third party to perform? As you can see the opportunity for a breach of contract and hence exercising the cancellation clause are numerous.

There might be some very valid reasons for exercising cancellation clauses. The meeting planner or venue might find it worth the trouble to eat some cost to terminate an agreement, and that's perfectly fine provided the language is all spelled out. Not all marriages are made to last.

International contracts open up an additional can of worms for the meeting planner. Force majeure clauses so popular in the United States might not be enforceable or even acceptable in some countries. Foster says prior to 9/11 European countries disdained the force majeure clauses, but their stances have softened somewhat because they too have experienced terrorist attacks.

You can reach John Foster at (404) 873-5200 or email John.Foster@fjglaw.net. Foster's practice focuses on this area on contract law.

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