Risk is both the chance of encountering harm or loss and an assessment of the degree of exposure
to loss or injury. Risk management (the identification, evaluation, and prioritization of risk) is a cornerstone of
an event planner’s professional practice. In almost every component of the event planning journey, we encounter
elements that speak to “risk”—including the acknowledgement of risk possibilities, the assessment of potential
damages, the anticipation of known risks, the planning for mitigation, the backup plans A, B, and C… and so on,
and so on. Risks associated with events are wide-ranging: natural disasters, emerging risks, terrorism, collateral
damage, health and safety concerns, crime and fraud, reputation and public image damage.
One of the most often overlooked elements of risk management is the contract
signed for the venue in which to host the live event!
Venues’ rental contracts are carefully crafted by their legal counsel to shift the burden of financial and logistical risks to the event host. Venues have rental contracts that address risks and risk management as they pertain to the venue. Venues have rental contracts that protect their own financial and logistical interests to the maximum extent.
So, what about the event host’s best interests and risks? Who is protecting event hosts?
Regrettably, it is rare that event hosts engage with legal counsel to negotiate venue contracts in order to protect
their best interests and manage risks. In fact, many event hosts take a “DIY” approach, which sadly leaves them
unnecessarily exposed to reputation, financial, and logistical risks. For those event hosts who wisely invest in
having event professionals plan and execute their events—either as staff or as sub-contractors—there is an implied
expectation that we will protect their best interests and manage risk. After all, we are hired to be the event’s advocate, we are hired to be savvy and articulate negotiators, and we are hired to be masterful at contracting. And yet, in my experience, the expertise that event professionals have specific to event contracts varies widely.
What Do Event Professionals Need to Know?
Event professionals are expected to recognize what risks are addressed in a venue contract, what risks are not
addressed, what the terminology and legal language in the contract means, the implications of the language, and
how to negotiate the clauses to achieve a BALANCED contract.
What is a balanced venue contract? Balance, by definition, means fair and in good proportion. A balanced venue
contract, therefore, is one that addresses and protects the needs of both parties—the venue AND the event host.
There are a multitude of considerations that need to be explored to deconstruct the draft contract presented
by the venue—because it is simply not going to be protective of the event host. This article presents three key
considerations for each of the major clauses involving risks that event hosts should always consider. However, these just scratch the surface, and every event host should dig deep into each and every clause to acquire the “know-how” that is required to negotiate balanced venue contracts that protect BOTH business parties—the venue and the event host—from financial and logistical risks.
Indemnification
The indemnification clause in a venue contract requires the indemnifying party (the party that has caused harm)
to protect the indemnified party (the party that has had harm done to it) and pay for loss and damage incurred by the indemnified party. It’s a promise to pay and means there is an assignment of blame or fault.
Consideration 1: Consulting with your event insurer is paramount before the contract is signed. Do you know for certain that your event insurance covers each of the “audiences” (i.e., employees, attendees, agents, subagents, etc.) identified in the venue contract? Can your insurance cover all of the terms and expectations in the contract? Not knowing these answers before signing is risky and leaves your event unduly exposed.
Consideration 2: Is there language that identifies when indemnification can be invoked? Have you established a schedule of events in your contract that clearly identifies the event functions? An event host should only be indemnifying for guests while they are participating in group-sanctioned functions.
Consideration 3: Terms such as sole and gross have specific legal meaning. Watching for and negotiating to remove these terms will broaden the opportunities to invoke indemnification and, thus, seek damages.
Termination
In a venue contract, termination means either the venue or the event host can end the contract for reasons/events
happening beyond their control and without liability (i.e., absence of monetary damages) to the other party. The concept of termination can also be referred to as “Acts of God,” “Excuse of Performance,” “Force Majeure,” or “Impossibility.”
Consideration 1: Whether termination is worded in broad terms or a laundry list of specific scenarios, event hosts need to ensure that the risks that are specific to the event location, the scope of event
logistics, and the audience demographics are itemized. It is the event host’s responsibility to identify these risks and protect their event with appropriate language. One should not settle for the default clause, as it rarely protects the interests of both the venue and the event host.
Consideration 2: Seemingly simple words can actually be powerful legal terms, and the term impossible in the Termination clause is one of those. The term impossible refers to incidents that clearly and
undeniably impact the ability of either the venue or the event host to move forward with the hosting of the event.
Impossible, therefore, indicates an objective decision. For event hosts, however, it is not sufficient to only address scenarios of impossibility. Event hosts require a balanced clause that addresses all levels of possibility: impossibility, impracticability, and frustration of purpose.
Consideration 3: A balanced termination clause needs to allow an event host to claim termination in advance of the actual event dates. To this end, the clause should identify a window of time that termination can be invoked.
Cancellation
The cancellation clause in a venue contract is included to permit either party to withdraw from the contract—
for reasons of their own or for reasons of breach of contract—all with the understanding that damages (typically
monetary) are owed to the other party.
Consideration 1: Typical venue contracts protect the venue’s interests “to the maximum,” should the event host wish to cancel the contract for their own reasons. Are you sure that your venue contract addresses and adequately mitigates the risks and damages for the following contexts for cancellation: cancellation by the event host due to the breach of contract by the venue; cancellation by the venue due to the breach of contract by the event host; and cancellation by the venue for their own non-contractual reasons.
Consideration 2: Is the cancellation clause calculated from a position of profit replacement or from a position of anticipated revenue? Do you know the difference? Negotiating the costs of cancellation from a position of profit replacement minimizes unnecessary financial payouts by event hosts. Financial risks are of the
highest importance to every business.
Consideration 3: It is important to understand that one of the premises of law requires the party
that has been harmed by the other party cancelling the contract has a responsibility to assist in minimizing the damages owed by the party that has cancelled the contract. For an event host who needs to cancel the contract then, a balanced contract contains provisions for the venue to assist the event host in minimizing the damages owed (i.e., reselling meeting space, reselling guestrooms).
Attrition
An attrition clause in a venue contract represents a commitment on behalf of the event host to meet a minimum standard of financial performance. Financial expectations in terms of guestroom revenue, food and beverage revenue, and meeting space revenue are typically carefully identified in the venue contract, along with criteria and monetary damages associated with not meeting these expectations.
Consideration 1: While a planner may think it is a great option to not have an attrition clause or to be able to negotiate attrition out of the contract, unless there is very specific language in the contract
acknowledging this, the event host may be wholly responsible for the entire room block. Do not leave your event unnecessarily exposed.
Consideration 2: Unless specifically captured in the venue contract, an event host could be unnecessarily penalized for “underperformance” for reasons beyond the event host’s control. Be sure to have attrition and termination clauses cross-referenced.
Consideration 3: Just like damages assessed for cancellation situations, attrition damages should be calculated as the profits anticipated to be generated from the full execution of the contract. It is a
fundamental premise of law that a venue should not end up in a better financial position if the event host cancels or underperforms than it would have if the contract had been fully executed. Event hosts need to negotiate attrition damages carefully!
Determining the clauses that contain risks for the event host is paramount to negotiating a balanced venue contract. Event hosts that deliberate these 12 considerations will be able to negotiate better clauses. That said, event hosts also need to acknowledge that these only scratch the surface of the full extent of considerations needed to create a fully balanced venue contract.
~ Heather Reid
