Contracts and Event Cancellations: Lessons Learned

Due to the coronavirus pandemic, there have been an unprecedented number of event cancellations and postponements in 2020. Since early March, as of this writing, we have cancelled 13 AMR client events through June, with still much uncertainty surrounding the rest of the year. Throughout this time, we have come away with some lessons learned related to the thought process regarding cancelling events.

Timing of the Decision
Probably the most important lesson learned is that you should NOT make a decision, officially or unofficially, on cancellation until you’ve gotten all of the information in place and know all of your options. The minute a decision is made to cancel, the contract becomes void. Why is this important? Because once the contract becomes void, the conditions at the time in which the cancellation is made will be used to determine whether the contract was cancelled with cause (without liability) or cancelled without cause (with liability).

For example, let’s say you have a July event in Indianapolis. The state of Indiana is following CDC guidelines regarding bans on large gatherings, and the current guidelines go through May 10. If the group makes the decision in early April to cancel the July event, conditions do not currently exist to cancel with cause, or without liability. It is simply too early to know what July will be like, and what conditions will be in place at that time. (There is a case to be made for conditions in place long enough for insufficient lead time – more on that later.)

It’s highly probable, however, that even if it’s too early to legally make a claim to cancel without cause, the group’s leadership is getting pressure to make a decision, given the current global circumstances, and the perception that it’s the “right” thing to do. Given that an outright cancellation would result in a sizeable financial loss to the association, what are the options? Wait as long as possible to make a decision, and during that time, do the research to find out if/when you have a case for cancellation for cause, and begin a negotiation with the hotel to try and mitigate any financial loss if a cancellation for cause cannot be found.

Cancelling for Cause
On the surface, it would seem like a global pandemic is a classic Force Majeure case, allowing groups to cancel without liability. For most hotel contracts, however, in order to cancel without liability, it must be illegal or impossible to hold the event. “Being a good global citizen” and “flattening the curve” are not, by themselves, illegal or impossible. Look for things like government bans on travel or large gatherings, institutional bans on travel, and CDC recommendations on large gatherings.

One thing to note: if the ban/guidance remains in effect until past the point the group is unable to “realistically and reasonably prepare” for a meeting by its event start (insufficient lead time), then the force majeure clause can still excuse performance. Showing inability to prepare for a meeting realistically and reasonably can be difficult to do, however. Look for things that would incur additional risks and/or expenses, such as print deadlines.

Be prepared to explain your case for cancellation, and if you think it would be a contested case. Low estimates for litigating are $80K-$100K in legal fees, plus potentially paying for the hotel’s legal fees if you lose.

Hotel Negotiation
If a cancellation for cause does not exist, your next step would be to reach out to hotel and begin to explore options. Ask questions such as: in light of current conditions, are you waiving cancellation fees? If not, and we decide not to have our meeting on the scheduled dates, would you consider a rebooking in lieu of paying liquidated damages, or a rebooking with credit (preferably 100%) of liquidated damages towards the new event? If we move forward with the meeting, but expect smaller attendance, will you waive contracted minimum revenue numbers? Remember: make it absolutely clear that no decision to cancel has been made, but that you’re only exploring options at this time.

Conclusion
Get all of your options together to present to your group’s leadership, including costs. When calculating costs, include all vendors and budget items paid that can’t be refunded or recouped, as well as any revenues that would be refunded. Help guide them to weigh the risks and understand the risks of each situation; and realize that they may be making the best of several bad choices.