Liquidated damages

How does the clause work?

Liquidated damages are what a hotel group contract calls the charge for not performing. They cover both cancellation of the whole event and rooms left unfilled. The second case is attrition. Sample contracts spell out the label: the group pays "as liquidated damages and not as a penalty". Hotels word it that way on purpose, because penalties are not enforceable and a charge the group agreed to in advance is.

The standard formula multiplies the shortfall by a rate. One Law Insider sample charges 75% of the average group room rate for each room night below 80%. Engine's worked example, 10 × $179 × 0.80, comes to $1,432.

What should you check before signing?

Start with resale. Liquidated damages law does not require proof of the hotel's actual loss or any credit for resale. If you want resold rooms to reduce the bill, the contract has to say so. It can, for example, reduce charges by the room rate received on each group room sold, with group rooms the last in the hotel's inventory to be sold.

Then check the rate basis. Executive Group Travel argues you should not pay attrition on taxes and fees, yet one Law Insider sample adds applicable taxes on top of the shortfall. You can negotiate offsets too. Stova suggests crediting F&B spend above the minimum against the damages.

In our view, the attrition percentage gets most of the attention in negotiation, while the resale and rate basis wording can move the final invoice just as far. Our worked attrition penalty example runs the numbers.