HOW THE
HOSPITALITY
INDUSTRY
MIGHT
RE-EXAMINE
CONTRACTUAL
OBLIGATIONS
DURING THE
CORONAVIRUS
PANDEMIC
Force
Majeure,
Impossibility
and
Frustration
of Purpose In
the COVID-19
Era
by Zachary M.
Seelenfreund, Philip T.
Simpson and Jeanne R.
Solomon
34 ILHA
The COVID-19 pandemic has presented hotels with
unprecedented financial challenges. The hospitality
industry is bearing a significant brunt of the
pandemic, with government mandates restricting
the operation of non-essential business and grinding
travel to a halt. These measures have thrown
hotel operations into disarray, causing drastically
lower occupancy rates, program and reservation
cancellations and supply chain disruptions for
goods and supplies that hotels need for their
daily operations. The pandemic also has placed
tremendous strain on retail stores restaurants and
bars, jeopardizing critical revenue streams for hotels.
The nationwide shuttering of hotels and hospitality
services has forced industry actors to extricate
themselves from a morass of contractual obligations
with property owners, lenders, contractors, guests,
organizers and vendors. Under these pressing
circumstances, hoteliers should closely examine
their contracts for opportunities to invoke force
majeure clauses and/or raise impossibility and
frustration of purpose defenses (together with other
equitable remedies) so as to gain breathing room and
help survive the coronavirus pandemic.
Depending on the contract’s jurisdiction and language,
a force majeure clause may excuse performance due
to circumstances beyond the parties’ control, such as
fire, flood, war or acts of God. Force majeure clauses
are intended to allocate risk between or among the
contracting parties if an external, unpredictable and
unavoidable event (such as the current COVID-19
pandemic) makes it impossible for the parties to
perform under the contract.
The first step in determining
whether force majeure applies
is to review the agreement’s
terms. Hotels seeking to cancel
events should identify whether
their contracts contain a force
majeure clause. The next step
is to determine whether any of
the events listed in the force
majeure clause apply to the
pandemic or its related effects.
For example, if the agreement
includes a concept like “act of
government”, “public healthrelated
event”, “outbreak” or
“pandemic” as a force majeure
event, performance may be
excusable or deferrable if it is
impossible to hold the event due
to a ban on social gatherings
or reductions of the in-person
workforce.