Pitfalls to Avoid When Negotiating Convention Center Licenses
Meeting planners need to be familiar with key legal issues in convention center contracts - called facility licenses - because the language is difficult to understand. They are full of pitfalls and contain liability-shifting language, and other provisions, with serious legal consequences to the event sponsor.
One of the most important responsibilities of trade show and exhibition sponsors (collectively referred to as ?event sponsors? in this article) is negotiating the contract with the convention center ("facility") hosting the event. Negotiating with facilities is substantially different than negotiating with hotels or other vendors. This is because state and/or local municipalities own the majority of the convention centers in the United States and there is almost always only one per city. Contracts with municipally owned convention centers are essentially real estate licenses or lease agreements, not service agreements. They are written by facility lawyers with three main objectives:
1. Specify terms of performance (rates, dates, space)
2. Protect the facility
3. Establish event sponsor?s responsibility and liability.
What?s missing here? The missing objectives are:
A. Establish event sponsor's rights and what the facility will do for the event sponsor in terms of service and performance
B. Establish the facility?s responsibility for the acts and/or omissions of its employees, agents, invitees, and contractors.
Facility agreements are referred to by a variety of names including "License," "Lease," ?Permit," and "Facility Use Contract." Regardless of the name used, the same basic rules that apply to all contracts apply to these agreements (collectively referred to as a facility license in this article). Event sponsors (and their legal counsel) need to be familiar with key legal issues in facility licenses. The language is full of pitfalls and contains liability-shifting language, and other provisions, with serious legal consequences to the event sponsor.
New and revised license terms to address issues important to the event sponsor should be submitted to the facility as a counter-proposal during the negotiation process. The counter-proposal can be in the form of a revised license and/or additional or revised terms in an attachment. When signed by both parties, the attachment becomes part of the license.
When reviewing and negotiating facility licenses, event sponsors should remember the four basic rules of contract negotiations:
1. Everything is negotiable - even terms in pre-printed forms
2. Ask for what you want
3. Get everything in writing
4. The document is not legally binding until both sides agree to the terms and sign it.
Because of the level of complexity, facility license negotiations take two to three years to finalize. Event sponsors should get an early start on the process. The following are several important issues and pitfalls that event sponsors and their legal counsel should consider to level the playing field.
KEY ISSUES, PITFALLS, AND SOLUTIONS
1. LETTERS OF INTENT
It is common practice for an event sponsor to sign a Letter of Intent with either the facility or the local convention and visitors bureau to hold space at the facility several years in advance. The Letter of Intent is intended to be a precursor to the actual license signed by the parties 12 to 18 months before the event. Event sponsors should never sign a Letter of Intent that commits them to holding the event in the facility without: (a) negotiating the terms and conditions in the actual license, and (b) finalizing all hotel contracts for attendee guest rooms. If signing a Letter of Intent is necessary to hold the space before the license and other contracts are signed, the Letter of Intent should contain all necessary contingency clauses. A contingency clause protects the event sponsor?s right to continue negotiating mutually agreeable terms with the facility and hotels by a certain deadline (see Example 1).
2. LIABILITY, INDEMNIFICATION, AND HOLD HARMLESS CLAUSES
The purpose of an ?indemnification? clause in a contract is for one party to agree to defend against and/or compensate the other party for asserted claims against that party under certain circumstances. An insurance policy is the purest example of an indemnification agreement where an insurance company agrees to indemnify its insured customer.
The general rule in most contracts between private parties involving potential liability on both sides is for both parties to agree to mutual indemnification. Mutual indemnification clauses provide that both parties agree to defend and/or compensate the other party for asserted claims against, or liability damages incurred by, the other party due to the acts or omissions of the first party.
Municipally owned facilities don?t fall under the general rule because of the doctrine of sovereign immunity. This doctrine holds that the ?sovereign? (i.e., state and local governments) cannot be held responsible for its actions unless it is in the best interest of the sovereign. Said another way, the sovereign can?t be sued unless it gives its consent. The doctrine has been offset by federal and state laws that allow citizens (individual or corporate) to bring suit against government entities in certain situations. These situations differ from state to state as applied to municipally owned facilities.
Indemnification and hold harmless clauses in municipally owned facility licenses typically state that the event sponsor will ?indemnify, hold harmless, and defend the convention facility from liability, loss, damage, or expenses resulting from the event sponsor?s use of the facility,? regardless of who or what causes the loss, damage, or injury. A modified version of this clause states that the event sponsor is not required to indemnify and hold harmless the facility when the facility is ?solely? negligent or ?grossly? negligent. These two standards are difficult, if not impossible to prove. The result is that the facility is not accepting much responsibility for its actions. What these licenses don?t say is that the facility will be responsible for even its slight negligence or the willful misconduct of its employees and agents.
When the latter version is used, the event sponsor should submit a counter proposal and insist on more reasonable terms. The new terms should state that ?sole? and ?gross? negligence includes the facility?s absolute responsibility for claims and/or judgments based on ?defects in the premises? and/or ?defects in equipment furnished by the facility.? New terms should also specify that the ?facility is at all times responsible for the acts and omissions of its employees, agents and invitees.? Privately owned convention facilities have much more latitude in the terms to which they can agree. Licenses with event sponsors and private facilities should always contain mutual indemnification clauses.
3. INSURANCE REQUIREMENTS
Most facility licenses require the event sponsor to obtain liability and property insurance coverage in a specific amount. Proof of insurance must be provided to the facility by a certain date. These requirements are reasonable as long as the scope and limits of insurance required are reasonable. (Reasonable amounts are in the range of $1 million per occurrence and $2 million to $3 million in the aggregate.) Insurance coverage guarantees that funds will be available to pay the defense costs and potential judgment if the facility is sued by a third party (i.e., attendee or guest) for the acts and/or omissions and willful misconduct of the event sponsor. The license should be amended to provide that the facility is also required to have insurance, or be self-insured, to pay the defense costs and potential judgment if the event sponsor is sued because of the acts or omissions of the facility.
The main insurance coverage required of event sponsors by facilities is a Commercial General Liability (CGL) policy. A typical CGL policy provides protection against claims involving bodily injury or death; damage to property owned, occupied or rented by the event sponsor, as well as property in the event sponsor?s care, custody, and control (unless excluded); and personal injury to third parties.
Other issues regarding insurance that need to be addressed by the event sponsor and negotiated into the facility license pertain to: (i) property damage; (ii) subrogation and waiver; (iii) fire legal liability; (iv) contractual liability; (v) non-owned automobiles; (vi) adding the facility as an additional insured; (vii) availability and affordability of insurance; and (viii) other exclusions. See sidebars throughout.
(i) PROPERTY DAMAGE
CGL insurance policies vary from state to state and from underwriter to underwriter. One of the variations is in the coverage of damage or loss to property in the ?care, custody, and control of the insured.? A total exclusion means that damage to or loss of any property in the facility being used by the event sponsor is not covered by the CGL policy. Some insurance companies offer a variation on total exclusion by offering coverage for damage or loss to property in the ?care, custody, and control of the insured? if the facility license is for seven days or less. Event sponsors can have the exclusion for property damage removed by agreeing to pay a higher premium. Another option is to purchase an additional, more expensive, policy called Broad Form Property Coverage to meet its contractual obligations in the facility license. Event sponsors should discuss their obligations for damage to the facility?s property with both their legal counsel and insurance broker.
(ii) SUBROGATION AND WAIVER
Subrogation means, in a legal sense, one party has the right to ?step into the shoes? of another party for the purposes of bringing a claim for damages. In insurance contracts, subrogation is a procedure whereby an insurance company pays an insured client?s claim for loss due to the acts or omissions of another party, then the insurance company takes over the rights of their insured client. That is, the right to sue the other party for damages. Virtually all liability policies contain a right of subrogation clause giving the insurance company the right to sue third parties on behalf of the insured client.
Most facility licenses contain a waiver of subrogation clause in favor of the facility only. A waiver of subrogation clause favoring the facility means the event sponsor?s insurance carrier cannot recover against the facility even if the facility is negligent in causing loss, injury, or damage. Event sponsors should negotiate a mutual waiver of subrogation that protects them as well. The effect will be lower insurance premiums.
Here is an example of how subrogation and waiver works. If a defect in the facility causes a loss, damage, or injury to the event sponsor, the event sponsor would collect proceeds from its insurance carrier to be made whole. The event sponsor?s insurance carrier would then seek recovery from the facility unless the event sponsor has agreed to waive subrogation in the license.
Conversely, if an event sponsor negligently causes a fire that damages the facility, the facility will be made whole by its insurance carrier. The facility?s insurance carrier will then subrogate the claim by standing in the place of its insured client, the facility, and recover the amount of the loss from the event sponsor unless the facility has agreed to waive subrogation in the license.
There are two types of waivers of subrogation. Both parties have to agree on the type to include in the contract:
Type 1: The waiver applies to the first dollar of loss experienced by the injured party that is covered by the injured party?s insurance.
Type 2: The waiver applies only to the amount of loss over and above the amount of insurance held by the party causing the damage.
Event sponsors should also negotiate terms in the license stating that any claims against it by the facility for liability losses are limited to the scope and amount of insurance the event sponsor is required to have under the license. Without these terms, an event sponsor could be held liable for millions of dollars for which it is uninsured.
(iii) FIRE LEGAL LIABILITY
Standard CGL policies include a limited amount of coverage for losses to a landlord (facility) caused by fire due to the event sponsor negligence. The standard amount in most policies is between $50,000 and $100,000. Coverage over this amount is expensive. Again, the license should be modified to limit the event sponsor?s liability exposure for fire legal liability to the amount and scope of insurance required by the facility and obtained by the event sponsor.
(iv) CONTRACTUAL LIABILITY
Standard CGL insurance policies exclude liability that the insured takes on as a contractual liability. Such liabilities can be assumed through an indemnification and hold harmless agreement. It may be necessary for the event sponsor to include a special endorsement to handle the event sponsor?s agreement to indemnify the facility under the terms of the license.
(v) NON-OWNED AUTOMOBILES
Most facility licenses require that the event sponsor have insurance for non-owned automobiles. Non-owned automobiles are any automobiles rented or borrowed by the insured party. Most CGL policies exclude coverage for non-owned automobiles. If any of the event sponsor?s staff or agents will be renting or borrowing an automobile in the course of business during the event, this coverage must be obtained separately. Conversely, if no members of the event sponsor?s staff, or its agents, will be using rented or borrowed automobiles during the event, the requirement to obtain this coverage should be negotiated out of the license.
(vi) ADDING FACILITY AS AN ADDITIONAL INSURED
All facilities require that the event sponsor add the facility?s owners, staff, and agents on the event sponsor's insurance policy as an additional insured. An additional insured is one who qualifies as "insured" under the terms of a policy even though not named as insured. Adding the facility as an additional insured guarantees that the event sponsor?s insurance will be the primary policy if a claim is filed. Many insurance companies will charge an additional fee to add another party as an additional insured. The amount of the fee will be based on the length of the event. Event sponsors should budget for this additional fee.
(vii) FUTURE AVAILABILITY AND AFFORDABILITY
The availability and affordability of certain insurance coverages are cyclical in the insurance market. Since event sponsors often book facilities three to 10 years in advance, no one knows what the insurance market will be when it's time to purchase the event insurance to satisfy the facility license. Event sponsors should consider negotiating a provision in the license that if the type of insurance specified in the license is unavailable or cost prohibitive at the time it must be purchased, then either: (i) the event sponsor will be required only to purchase that insurance which is available and most reasonably approximates the insurance specified in the license, or (ii) the facility will add the event sponsor on the facility's policy as an additional insured. At what point the premium becomes cost prohibitive must be stated in the license to avoid a future dispute.
(viii) OTHER EXCLUSIONS
All CGL policies have significant exclusions that must be understood by the event sponsor as the insured party. Frequently, event sponsors must pay an extra premium to have an exclusion removed or purchase a different policy altogether to cover damage, loss, or injury for which they are responsible. Additional exclusions may include coverage for host liquor liability and coverage for damage or loss occurring during move-in, move-out of exhibits, and during setup.
4. ONE-SIDED CANCELLATION (DEFAULT) CLAUSES
Hotels call it a cancellation clause; facilities call it a "default clause." Standard facility licenses specify in detail what damages will be due to the facility if the event sponsor cancels (defaults) on the license. Event sponsors should negotiate a mutual provision specifying what damages will be due the event sponsor if the facility defaults on the license. Some facilities address this issue in the license by stating that the facility's only obligation for default is a return of any deposits already paid. This latter remedy is totally inadequate and should be unacceptable to event sponsors. Damages due to the event sponsor should include costs over and above returning all deposits such as: expenses associated with relocating the event to another facility (even to another city), increased costs for a higher rental fee in the alternate location, site inspection trips, printing and postage to advise attendees of the change, long distance calls, and other related expenses incurred by the event sponsor due to default by the facility. Damages should also include lost registration fees, if any, due to moving the event to alternate dates and/or to an alternate city.
5. "AS IS" CONDITION OF THE FACILITY
The typical facility license states that the sponsor agrees to accept the facility in ?as is? condition. The peril here is that when booking several years in advance, the condition of the facility will not be known until the meeting is held. The event sponsor should negotiate language into the license whereby the facility warrants and represents that it will be in the same or better condition during the event dates, as it was when the license was negotiated and signed. The event sponsor should have the right to terminate the license, or proportionally reduce the rental fee, if at a certain time before the event dates, the event sponsor reasonably determines that the facility has deteriorated to an unacceptable level. If this issue is a concern to the event sponsor, photographs or a video should be made of the facility during one of the inspection trips in order to substantiate a potential future claim. In the absence of photographs or video, the facility's brochure can be used to substantiate changes in condition.
Another issue is the facility's compliance with all local, state, and federal laws relating to fire safety and health conditions, including the Americans with Disabilities Act. An event sponsor that meets in a facility that is unsafe or is in code violation could be held vicariously liable. This could occur if an attendee is injured as a result of the code violation, or other hazardous condition, and the event sponsor should have known about it. The solution to this pitfall is for the event sponsor to make the facility warrant in writing that it will comply with all legal requirements for a safe and accessible facility during the event dates.
6. CONDITION OF RETURNED PREMISES
The standard facility license requires the event sponsor to return the premises at the end of the event in the same condition as when the event sponsor took possession of it. Normal wear and tear and acts of God are general excluded. The event sponsor should add a provision specifying that, at the end of the move-out period, authorized representatives from the event sponsor and the facility will jointly inspect the facility and ascertain any damage to the facility resulting from the activities of the event. The provision should further state that the facility is required to notify the event sponsor of the cost to repair any damage based on three competitive bids no later than 30 days after the end of the move-out. This provision will prevent the event sponsor from being billed for alleged damage to the facility several months after the event is over and the origin of the damage cannot be substantiated.
7. COMPLIANCE WITH FUTURE OPERATING RULES
This pitfall occurs in licenses that incorporate the facility?s operating rules and regulations by reference and specify that the event sponsor is bound by all future changes to them. To deal with it: (i) obtain and review a copy of the current operating rules and regulations before the license is signed, (ii) amend the license to provide that the event sponsor will not be bound by future changes to the operating rules that materially affect the operations or financial performance of the event unless the changes are in the form of a local ordinance or statute, and (iii) amend the license to state if the parties cannot negotiate a mutually acceptable remedy that the event sponsor may terminate the license or receive a proportionate reduction in the rental.
8. EXCLUSIVE SERVICE CONTRACTORS
Most municipal facilities have contracts with certain service providers to be the exclusive provider of that service in the facility. The facility benefits by a revenue-sharing arrangement with the exclusive provider. The topic is controversial because event sponsors may have a third-party service provider that they prefer to use. In many cases, the facility?s exclusive provider will charge more for its services because of its exclusivity.
This issue is always worth negotiating. Event sponsors should take the position that they have the right to use any service contractor that best fits their needs regarding price and level of service. Event sponsors should negotiate into the license a ?Use of Outside Service Contractors? clause (See Example 2), stating the event sponsor has the right to use any contractor of its choice. If the facility insists that the event sponsor must use its exclusive contractors, specify in the license what services exclusive contractors currently provide. Then, reserve the right to hire outside service contractors of the event sponsor's choice for services not currently reserved by the facility. Some facilities are willing to waive the exclusive provider provision if event sponsors can substantiate that they have a long-term contract with another preferred supplier.
9. NOTICE OF DEFAULT AND OPPORTUNITY TO CURE
Facility licenses usually provide that the facility has a unilateral right to terminate the license, keep any deposits paid, and hold the event sponsor liable for additional damages if the event sponsor defaults in any way that is material to the performance. Event sponsors should change this provision to require the facility to give the event sponsor written notice of the specific nature of the alleged default together with a reasonable period of time to cure. This will prevent the facility from terminating the license in order to book another more profitable group if an event sponsor is several days late on a deposit.
10. EJECTION OF DISORDERLY PERSONS BY FACILITY
Many facility licenses have a provision similar to the following:
"Facility shall have the right to refuse entrance to, or remove and eject from the facilities, any person associated with event sponsor or present at the event whose conduct is objectionable, disorderly, disruptive, or in violation of any law. The indemnification provisions of this agreement shall apply to any claim or cause of action arising from such ejection."
Under the above provision, if an ejected individual is injured in the process and files suit against the facility for excessive use of force, the event sponsor is required to defend the suit and pay any subsequent claims. This is true even though the claim was based on the actions of the facility?s employee(s). Event sponsors should revise the above provision to say that its duty to indemnify the facility does not pertain to claims of excessive use of force by facility personnel.
11. REIMBURSEMENT FOR COSTS TO ENFORCE LICENSE
The typical license states that the event sponsor will reimburse the facility for any expenses that the facility incurs, including attorney's fees, to enforce its rights under the license. The event sponsor should modify this one-sided clause to make it mutual, specifying that in any dispute between the parties relating to the license, the prevailing party will be entitled to recover its reasonable attorney?s fees and all related costs to the litigation or arbitration. Adding this provision gives both parties a strong motivation to settle any disputes out of court before engaging in expensive litigation. In the alternative, the license can be modified to say that both sides will pay their own expenses and that the award of attorney?s fees is at the discretion of the court (or arbitrator[s]).
12. OTHER EVENTS IN FACILITY
The standard facility license gives the facility the right to schedule other events in the facility concurrent with existing functions. This is a reasonable provision as long as competitive groups are not booked over the same or overlapping dates. A competitive group is defined as any other association, company, or event sponsor that deals with the same industry or subject matter and seeks to attract the same attendees and/or exhibitors. This restriction should be specified in the license. Also, specify what the consequences will be if this provision is violated by the facility.
13. CONTRACT INTERPRETATION
Some licenses specify that if there are any disputes over the meaning or intent of any terms contained in the license, the facility's legal counsel, or an attorney representing the city or county, shall have the sole authority to interpret the license. This provision is one-sided and should be stricken. The license should be amended to state that disputes concerning the license will be settled by either mutual agreement of the parties or by some other dispute resolution procedure.
14. USE OF THE FACILITY?S EQUIPMENT
Most facility licenses have an unacceptable provision that says the facility will provide the event sponsor with a "reasonable amount of chairs and tables not to exceed the facility's inventory. If the facility's inventory is depleted, the expense of renting additional equipment is the responsibility of the event sponsor."
The above provision is unacceptable, because an event sponsor would have to have total control over the facility's inventory as well as knowledge of the equipment needs of other groups in the facility at the same time. Furthermore, part of the rental fee paid to a facility for an event includes the use of sufficient chairs and tables and is the facility's cost of doing business. It should not be passed on to facility users.
The license should be revised to say that all chairs and tables used by the event will be provided at no charge to the event sponsor up to the full capacity of each meeting room used as specified by the facility's marketing material including references to seating capacity. It is reasonable to say that this applies to facility meeting rooms only and not to exhibit halls.
15. FORCE MAJEURE AND TERMINATION
The legal principle known as the "force majeure" doctrine is based on the premise that a party to a contract should not be held responsible for performing its obligations if the reason it cannot perform is due to a supervening act or occurrence outside its control that prevents or impedes its performance. There are three subcategories of the "force majeure" principle: (i) impossibility of performance (objective), (ii) impracticability of performance - this means performance is not impossible but has been made substantially more burdensome or unsafe by circumstances the parties did not contemplate at the time of executing the license, and (iii) the purpose of one or both of the parties has been frustrated due to an act or occurrence outside the party's control (called the frustration of purpose doctrine). This legal principle is applicable if the contract actually states the purpose that one or both parties later claims was frustrated.
A typical force majeure provision prepared by a facility says: "If the licensed area or all or any other part of the facility is rendered unusable by fire or other casualty - beyond the control of the facility, the facility shall have the right to terminate this license."
The provision above only benefits the facility. As written, it doesn?t recognize the many factors that could have a negative impact on the licensee?s ability to perform. If event sponsors agree to wording similar to the above, they are waiving the right to claim any other reason for terminating the license without liability. Event sponsors should insist that the license be revised to account for nonperformance due to: terrorism (or threats), blackouts, disease epidemics in the destination city as well as in the attendees? origination cities, airline strikes, and inability of foreign attendees to travel to the United States.
CONCLUSION
A facility license, like all contracts, should be fair to both sides and specify the rights and expectations of both parties. The final document should address all of the following: 1) the rates, dates, and space, 2) what the event sponsor promises to do for the facility, 3) what the facility is required to do for the event sponsor, 4) how loss, damage, or injury will be allocated to the parties according to fault, and 5) how both parties? interests are protected.
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Example 1
Contingency Clause
Event sponsor's obligation to hold its event in the facility on the dates of (list dates) is contingent upon event sponsor being able to negotiate mutually agreeable rates, fees, terms, and conditions with the facility and with a sufficient number of hotels to accommodate event sponsor?s anticipated number of attendees. Should event sponsor not have all hotel contracts and the facility license fully executed with mutually agreeable terms by (specify deadline date), event sponsor may elect to terminate the Letter of Intent with the facility without further obligation or liability.
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Example 2
Use of Outside Service Contractors
Event sponsor may engage any reputable service contractor of its choice to provide services such as audiovisual equipment and operation, destination management, exhibitor decorator, drayage, installation and dismantlement, floral, licensed security, photographic, booth cleaning, labor, entertainment, show production, and other similar services required at facility during the event dates. Should facility have in-house or exclusive contractors for the same service, event sponsor will not be required to use said in-house or exclusive contractors unless their prices or rates and their reputation for service are the same or better than event sponsor's preferred contractor(s).
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