A “Niggling” Red Flag!

Heather Reid

LEAVE A COMMENT

Recently I was consulting with a contract review client and I encountered a situation that has been weighing on my mind since!

As Event Hosts start to consider the viability, the liability and perhaps the desirability of hosting their 2021 in-person events, they may not have the tenets of Force Majeure to rely on to cancel or postpone their event (ie., venues may be open for business; mass gathering rules may be more favourable).  Thus, cancellation may be the option.

Here's the situation (modified #s of course!) that I encountered:

In the cancellation damages proposal, the Event Host was being given the opportunity to move 80% of potential cancellation damages forward to a future year's event (thanks Venue!).

Cancellation damages at 180 days prior were calculated as 75% of anticipated revenue:

1600 nights x 80% pick-up x $200/night = $256,000
$15,000 F&B minimum
$15,000 Meeting Room Rental

ANTICIPATED REVENUE = $286,000

Thus,

75% CANCELLATION DAMAGES = $214,500

Thus,

80% DAMAGES CARRIED FORWARD = $171,600

Now - there are many things I could say about this cancellation proposal, but what was really niggling at me was this:

If the Event Host actually has $171,600 carried forward to a future year, HOW will that Event Host possibly use all of that credit?

Consider this......

In the original contract, individual attendees paid for their room nights, and the Event Host was paying for the F&B and the Meeting Room Rental - and probably for a small master rooming list.  Perhaps the Event Host would be directly responsible for $60,000.

How then, would the Event Host possibly spend the remaining $110,000+ of their credit?

Would they have to gift attendees their room nights?  Would they have to have lavish F&B?

I don't know the answer to my question - however, I did want to share this niggling concern because it is an angle that I'm not confident is often considered!

As always - if I can help you forensically "think through" your existing and future contracts - you know where to find me!