Due to the complete unforeseen and devastating effects of the rapidly spreading COVID-19 pandemic, nonprofits are facing incredibly tough decisions right now regarding upcoming and long-scheduled conferences and meetings in the United States and around the world. Even for those organizations with meetings slated for the next month or two, while most do not believe it is realistic that those events will be able to move forward as planned, the game of “chicken” being played with hotels, convention centers, meeting vendors, and event cancelation insurance carriers – is a high-stakes one with potentially crippling adverse financial consequences for many nonprofits.
While there are certainly many venues that are being cooperative and understanding — particularly if the organization agrees to reschedule its meeting or book one or more new ones in the future — there are just as many more, due to the remarkable economic pressures they are under, that are taking a harder line than we have seen in past (albeit less severe) crises.
Nonprofits are struggling to determine the best path forward for their conferences and meetings. It is a challenge with recent developments, including the classification of COVID-19 as a pandemic by the World Health Organization (WHO), President Donald Trump’s recommendation against gatherings of more than 10 people, the Centers for Disease Control and Prevention’s (CDC) strong urging to ban any gatherings of more than 50 people, and the bans or admonitions of so many states, cities and counties around the United States against the congregating of various numbers of people.
The issues and considerations that are driving much of this analysis are legal in nature — contract provisions, insurance coverage, and governmental bans and advisories, to name a few — and it is critical for nonprofits and their advisers to understand both the basics and the nuances in this area to make the most informed, strategic decisions that will best protect the organization now and into the future.
Force Majeure Contract Provisions
The first step is to take a long, hard look at your event contracts. Specifically, you will want to focus on the cancelation provisions in your contracts, especially the “force majeure” provision (sometimes referred to as “impossibility” or “termination for cause”). “Force majeure” is a French term literally meaning “overpowering or irresistible force.” It is a common law principle and a contract term that can work to relieve the parties from performing their contractual obligations when certain unforeseen circumstances beyond their control arise. For hotel, convention center, and vendor contracts, the difference for nonprofits between being able to successfully apply such provisions — or not — is often the difference between avoiding or paying the significant cancelation penalties built into most such contracts, as well as the ability to recover previously paid deposits.
Typically speaking, hotels, convention centers, and meeting vendors strongly favor narrow force majeure provisions making it difficult to terminate without penalty. In contrast, event organizers such as nonprofits generally attempt to negotiate force majeure provisions that are as broad as possible, making such terminations more likely.
Force majeure provisions have two key parts and should be viewed as a two-part test. Both parts of the test need to be satisfied for the force majeure provision to apply. The first is whether there is a qualifying force majeure event. The second is what effect does that event have on the ability of the parties to perform their obligations under the agreement.
Regarding the first part of the test, for nonprofits, it is important not only to have as broad a listing of qualifying events (e.g., Acts of God, disasters, war, terrorism, disease, etc.), but most importantly, to include a catch-all phrase — such as “including but not limited to” or “or other similar cause beyond the control of the parties” — that allows for other unforeseen events beyond those expressly listed.
Regarding the second part of the test, event venues generally advocate for limiting the applicability of force majeure to those events that make it “illegal or impossible” for either party to perform its obligations. In contrast, nonprofits should seek to include additional effects of such force majeure events, particularly those that make it “inadvisable” or “commercially impractical” for the parties to perform their obligations.
Nonprofits with the broader, more expansive language in their force majeure clauses have generally had a much easier time being able to cancel without penalty their upcoming meetings that are simply unable to happen in the midst of the current crisis. In contrast, those nonprofits with the much more restrictive “illegal or impossible” standard in their clauses — which is the majority, by far — have generally faced hotels and convention centers that will not accede to a cancelation without penalty unless, in their view, the meeting is unambiguously legally prohibited from happening by a federal, state or local government on and at that particular date and location. While this is certainly not universally the case across the board, as scores of nonprofit executives can attest, this is happening every day across the country, and has been a source of great frustration for many nonprofits.
A force majeure analysis involves applying the precise verbiage of the provision to the facts that exist at the moment the cancelation notice is provided to the event venue, effectively locking in place those facts. For instance, in numerous recent cases, where a cancelation notice was provided on a day with no applicable governmental ban and then the next day a state or local ban is instituted that applies to the meeting at issue, most venues have taken the position that the ban is inapplicable and the nonprofit is liable for the full cancelation penalties.
Finally, if you are considering rescheduling a meeting for this summer or fall, be sure to consider the possibility that this pandemic might extend longer than some expect, and be sure to protect your nonprofit’s ability to cancel or further postpone that event, or at least not be liable for significant “attrition” penalties if attendance if far less than expected.