The COVID-19 economic crisis in the hospitality industry means many owners are faced with an uncomfortable decision about whether to close their doors permanently. As you weigh the pros and cons, make sure you fully understand what your contract says about termination fees and liquidated damages—and how you could use them to your advantage.
Marriott earned $50 million in termination fees last year, but in the current climate owners may not be able to afford those fees, or could escape them in bankruptcy. Marriott stated in an April SEC filing, “Hotel owners or franchisees in bankruptcy may not have sufficient assets to pay us termination fees, other unpaid fees or reimbursements we are owed under their agreements with us.”
The brands know that pushing a franchisee into bankruptcy will cut off their own income. That could give franchisees some latitude in making requests for different forms of relief, such as proposing a temporary halt in franchise fees in exchange for paying some amount of termination fees in the event of a permanent closure—or vice versa, or a total waiver of termination fees in exchange for future loyalty when the market supports re-opening or new development.
Attached to this article is a copy of a guide to Marriott’s termination fees and liquidated damages, first posted in 2018.