Legal Question in Business Law in California

Re: Over Performance Clause

Not really sure what your are asking. It looks like you're asking more in terms of a business issue rather than a legal issue. Do you want to clarify?

Re: Over Performance Clause

I don't believe this is really a well-settled matter of law, but rather a question about equities and industry standards. With regard to what the "market" standard is for these sorts of agreements, you have little recourse save to "ask around" - but if you're trying to explain to your client why they may be over asking, it might simply be a question of the equities and incentives involved.

The hotel has an incentive to maximize its profit and not simply its revenue. By agreeing to allow your client to take up a certain amount of the hotel's finite resources - event facilities - the hotel is eating the opportunity cost of another group using those same facilities. But it is difficult for the hotel to "auction" the meeting facilities to the group that will bring the most revenue, so a minimum guaranteed amount of profit is the most efficient way to ensure profitability and maximization of resources.

With regard to Food and Beverage (or F&B) this only becomes profitable for the hotel at a certain level of usage. F&B requires a significant minimum amount of labor and raw materials expenditure. But, as above there is no efficient way for the hotel to determine which group will eat/drink the most, so establishing a minimum guaranteed revenue amount allows the hotel to ensure a baseline level of profitability.

Assume, for example, that the hotel sets the minimum amounts at the level at which they are minimally profitable - the break even point. The hotel has then transferred the risk of LOSING money to the booking entities (your client). But if you client has their way in the contract, all the upside risk will ALSO inure to the benefit of the booking groups. That is, the profitability of the hotel is capped at some point, because above that point they will owe consideration BACK to the booking party. In this scenario there is VERY little in it for the hotel, and assuming there is any sort of competitive demand for the meeting facilities in question, your client might expect a great deal of resistance.

If, however, your client is willing to absorb an additional amount of the risk for UNDER-performance (i.e. accept a higher minimum) they may be able to get some concessions for overage.

This, of course, ignores many of the other items which may weigh on the equities:

If your client's business is lucrative enough that hotel's will compete for it.

If the time period in question is on or off-peak for the hotel involved.

The number of alternate available venues, etc.

It has been my experience, however, that the equities in these situations almost always favor the hotel - the party in possession of the fixed asset which your client desires to lease. And with that in mind, I imagine, as with any negotiation, that it never hurts to ask, but that you shouldn't expect to get any additional consideration unless you are willing to give some.

Re: Over Performance Clause

I do not understand this.

Best,

Daniel Bakondi, Esq.

IMPORTANT:

No attorney-client nor confidential relationship is created through this communication. You may not rely in any way on this communication, and nothing herein constitutes legal advice nor legal opinion. Your issue may be time sensitive and may result in loss of rights if you do not obtain an attorney immediately.