Law and the Hospitality Industry

1. Law and the Hospitality Industry Module Four HMGT 401 on-line Fall 2014 Judy Streeter UMES - HRM

2. Business Contracts Chapter Four

3. What you need to know… • Explain the two basic types of valid business contracts. • Describe four essential components that must be present to create a valid contract. • Explain the purpose of the Uniform Commercial Code (UCC). • Describe the consequences of breaching an enforceable contract.

4. Legalese: • Plaintiff -The person or entity that initiates litigation against another. Sometimes also referred to as the claimant, petitioner, or applicant. • Defendant - The person or entity against which litigation is initiated. Sometimes referred to as the respondent.

5. Legalese: Contract A contract is a legally binding agreement between two or more parties What are some examples of common hospitality contracts?

6. Two types of valid contracts? Verbal Written

7. Legalese: • Enforceable Contract - A contract recognized as valid by the courts and subject to the court’s ability to compel compliance with its terms.

8. A contract is a legally binding agreement between two or more parties • Offer • Acceptance • Consideration • Legality • Capacity

9. A contract is a legally binding agreement between two or more parties • Offer • Acceptance • Consideration • Legality • Capacity • Minimum age • Mental capacity • Legal entity • Authority

10. A contract is a legally binding agreement between two or more parties • Offer • Acceptance • Consideration • Legality • Capacity • The objective of the contract must be for a legal purpose • In some cases the contract must be in writing • No duress involved

11. A contract is a legally binding agreement between two or more parties • Offer • Acceptance • Consideration • Legality • Capacity “A proposal to perform an act or to pay an amount that, if accepted, constitutes a legally valid contract.”

12. A contract is a legally binding agreement between two or more parties • Offer • Acceptance • Consideration • Legality • Capacity “The payment/value exchanged for the promise(s) contained in a contract.”

13. A contract is a legally binding agreement between two or more parties • Offer • Acceptance • Consideration • Legality • Capacity “Unconditional agreement to the precise terms and conditions of an offer.”

14. A contract is a legally binding agreement between two or more parties Legal Acceptance • Verbal or nonverbal agreement • Acceptance of a deposit • Acceptance of partial or full payment • Agreement in writing

15. Legalese: • Counteroffer: “Conditional agreement to the terms and conditions of an offer that includes a change to those terms, creating a new offer.”

16. Uniform Commercial Code (UCC) • Uniform Commercial Code: A model statute covering things such as the sale of goods, credit, and bank transactions. • Sales < $500. must be in writing and agreed to by both parties. • Implied Warranty of Merchantability • Suitable for buying and selling. • Fit for use and free of known defects. • Buyer must immediately inspect and notify of any discrepancies.

17. WHEN THINGS GO WRONG BREACH

18. BREACH OF CONTRACT Failure to keep the promises or agreements made in a contract

19. Legalese: • Force majeure: “greater force” – a natural or human-induced disaster, through no fault of the parties to the contract, that causes a contract to not be performed. (i.e. hurricanes, war, strikes) • Damages - Losses or costs incurred due to another’s wrongful act.

20. Remedies: Solutions a party can seek to compensate it for breach of contract by the other party

21. Remedies • Suit for Specific Performance

22. Remedies • Suit for Specific Performance • Liquidated Damages

23. Remedies • Suit for Specific Performance • Liquidated Damages • Economic Loss

24. Who resolves disputes? • Parties directly through negotiation Statute of limitations • Court System • Arbitration • Mediation

25. Resolving the dispute… • Arbitration - A process in which an agreed-upon, independent, neutral third party (the arbitrator), renders a final and binding resolution to a dispute. The decision of the arbitrator is known as the “award.” • Mediation- A process in which an appointed, neutral third party (the mediator), assists those involved in a dispute with resolving their own differences. The result of mediation, when successful, is known as the“settlement.”

26. This is your job as a manager!!! Avoid Breach of Contract…. • Get it in writing • Read the contract thoroughly • Keep copies of all contract documents • Use good faith when negotiating contracts • Note and calendar time deadlines for performance • Ensure the performance of third parties • Share contract information with those who need to know and educate staff on consequences of contract breach. • Resolve ambiguities as quickly and fairly as possible

27. Forecasting Contract Capacity • …how many contracts for products and services during any given time period… • rounds of golf, room reservations, dinner reservations What are some examples in the hospitality business?

28. Reservations…. • Confirmed • Nonguaranteed • Guaranteed

29. Legalese: • Confirmed Reservation - A contract to provide a reservation in which the provider guarantees the guest’s reservation will be honored until a mutually agreeable time. A confirmed reservation may be either guaranteed or nonguaranteed. • Nonguaranteed Reservation - A contract to provide a confirmed reservation where no prepayment or authorization is required. • Guaranteed Reservation - A contract to provide a confirmed reservation in which the provider guarantees the guest’s reservation will be honored regardless of time of arrival, but the guest will be charged if he or she no- shows the reservation. Prepayment or payment authorization is required.

30. Purpose of a Good Contract All parties clearly understand the obligations of all parties Parties agree up front what will happen if a party doesn’t perform

31. Significant Hospitality Contract Chapter Five

32. What you need to know…. • Describe contract clauses commonly utilized in hospitality contracts. • Explain the purpose of a franchise contract/agreement. • Explain the purpose of a management contract/agreement. • Recognize and explain the various clauses used in catering, meeting space and group rooms contracts.

33. Types of Specialize Contracts • Franchise-related Contracts • Management Operating Agreements • Meeting Space Contracts • Group Lodging Contracts

34. Operational Structure…. “ The relationship between a business’s ownership and its management.” The relationship is clearly established in the contract! From Module Two… Owner: Southern Hospitality Group, LLC Management Company: Winegardner & Hammons, Inc. Franchisor: Marriott International, Inc. Franchisee: Southern Hospitality Group Spartanburg Marriott at Renaissance Park

35. Types of Specialized Contracts Operating agreement: a contract that details the areas of responsibilities of the owner of a business and the entity selected by the owner to operate the business. Also referred to as a “management contract” Owner: Southern Hospitality Group, LLC Management Company: Winegardner & Hammons, Inc. Example: Spartanburg Marriott at Renaissance Park

36. Types of Specialized Contracts Meeting Space Contracts: details the services the facility (hotel, convention center, country club, restaurant or catering hall) will provide their guests, as well as the terms under which they will provide them. Winegardner & Hammons, Inc. (Spartanburg Marriott) Meeting Planner Example: Spartanburg Marriott at Renaissance Park

37. Types of Specialized Contracts Group Lodging Contracts: details the amount of rooms, dates, cost/discount, cancellation, and other agreements between the hotel and an individual or organization for a large number of guest rooms Winegardner & Hammons, Inc. (Spartanburg Marriott) Individual or Organization Example: Spartanburg Marriott at Renaissance Park

38. Legalese • Clause (contract) – a distinct contract provision or stipulation

39. Essential clauses when providing products and services… • Length of time that the contract price terms are in existence. • Identification of who is authorized to modify the contract. • Deposit and cancellation policies. • Allowable Attrition. • Indemnification for damages. • Payment terms. • Performance standards related to quantity. Attrition – Reduction in the number of projected participants or attendees.

40. Essential clauses for purchasing products and services… • Payment terms • Delivery or start date • Completion date • Performance standards • Licenses and permits • Indemnification • Nonperformance clauses • Dispute resolution terms Indemnification– To make one whole; to reimburse for a loss already incurred.

41. Exculpatory Clauses • ….releases one of the parties from liability for his or her wrongdoings…

42. Operational Structure…. “ The relationship between a business’s ownership and its management.” The relationship is clearly established in the contract! From Module Two… Owner: Southern Hospitality Group, LLC Management Company: Winegardner & Hammons, Inc. Franchisor: Marriott International, Inc. Franchisee: Southern Hospitality Group Spartanburg Marriott at Renaissance Park

43. The Hospitality Franchise • Franchise: • A contract between a parent company (franchisor) and an operating company (franchisee) to allow the franchisee to run a business with the brand name of the parent company, as long as the terms of the contract concerning methods of operation are followed. • Franchise Rule (Federal Trade Commission) • Franchise Offering Circular • Franchise agreements • Refunds • Contradictory claims • Basic disclosures • Earnings claims • Advertised claims

44. Franchise Agreement • Franchise Agreement • A specialized hospitality contract that details the responsibilities of both parties (franchisor and franchisee) involved in the operation of a franchise. Franchisor: Marriott International, Inc. Franchisee: Southern Hospitality Group Example: Spartanburg Marriott at Renaissance Park

45. Management Contracts: • Management Company • An entity that, for a fee assumes responsibility for the day-to-day operation of a business • Management Agreement • Legal agreement that defines the responsibilities of the business owner and the management company chosen to operate the owner’s business. Also know as a “management contract”

46. Our example….Management Agreement Owner: Southern Hospitality Group, LLC Management Company: Winegardner & Hammons, Inc. Example: Spartanburg Marriott at Renaissance Park

47. Conference Services contracts… • An agreement that details the space, products, and services to be provided to a group before, during and after its meeting. • Meeting and Space contracts • Group Lodging contracts • Terminology to know.. • Master Bill • Cut-off Date

48. Terms to know… contracts • Master bill- A single folio (bill) established for a group that includes specifically agreed-upon group charges. Sometimes called a “master folio,” “group folio,” or “group bill.” • Cut-off date - The date on which any rooms contracted, and thus held for sale, but not yet picked up (reserved) by the group are returned to the hotel’s general rooms inventory.

49. Group Lodging contracts….should include • Total number of rooms and room nights • Arrival and departure dates • Negotiated group rates • Cut-off date • Reservation procedures • Complimentary rooms (if any) • Disclosure of all fees including early departure fees, no shows, etc. • Room taxes, surcharges and extra person charges • Rates applicable to rooms booked after the cut-off or reservations due date. • If rooms booked before or after the group stay dates will be counted in the total, cumulative room block. • If early departure fee, who will advise each guest of the policy and consider whether fees count toward attrition fees, if any. • How room rates will be calculated if the contract is signed prior to the establishment of the group’s final rates.