- How do we deal with customers that cancelled reservations during the COVID-19 outbreak period?
Firstly, the COVID-19 outbreak can be defined as a "force majeure event" under Chinese laws. In this context, whether a reservation can be cancelled free of penalty as provided in the reservation terms would be dependent on whether the customer had become unable to take the reserved room due to COVID-19.
We have observed that major hotel chains have introduced widely applicable waivers for cancellation fees, and have offered more flexible rebooking policies. For example, Wyndham Hotels and Resorts announced that guests who have booked directly via Wyndham's channels and have travelled to or from Greater China, South Korea or Italy may cancel and/or change their reservations without any penalty through March 31, 2020. Even though it's not required by law, hotels may want to consider this for wider business reasons.
- As travel restrictions continues globally, how should loyalty programs be handled?
As travel restrictions seem to continue indefinitely, customers that have enrolled in hotel loyal programs have an arguable case that their "performance" under the loyalty customer agreement will have been significantly affected, and it is justifiable to extend their current membership status.
Many international hotel groups have voluntarily offered preferential status and benefit extensions to their loyalty program members in selected regions, including in particular the Greater China region. Likewise, from both legal and business perspectives, hotels may also consider extending the membership status to help retain customers in the long term.
- Can the hotel operators claim that the decline of revenue is due to a force majeure incurred by COVID-19 and then ask for a release of their performance obligations?
For hotel groups, the most immediate effect of COVID-19 will be a decline in revenues, which could cause some hotel operators to fail their performance obligations – thus giving the owners the right to terminate the management agreement. On the other hand, hotel operators are likely to claim that the impact of COVID-19 constitutes a force majeure event. However, a claim of force majeure is not always appropriate in this circumstance and it cannot be used mechanically to escape the relevant liabilities, because such a claim will be subject to careful analysis on the relevant facts, such as the level of difficulty encountered in performing the contract, and the causation between the facts and the inability to perform a contract.
Notably, some Chinese hotel groups have announced measures to help their hotels by offering loans and introducing reductions in franchise fees. For example, Jin Jiang Group, the world's third-largest hotel group, has raised a total of CNY 3.5 billion special loans to support hotels with cash flow shortages and have also provided such hotels with special low-interest loans.
- Can hotels that do not own the leasehold apply rent reduction due to the outbreak of COVID19?
Force majeure clauses may not inevitably support any requests for rent reductions or payment exemptions because this particular outbreak has not prevented hotel operators from managing such hotels (i.e., the purpose of the lease can still be achieved, albeit at a lesser volume of business) Specifically, temporary closures or decreases in revenues are not legal grounds to reduce or exempt rent unless such is specified in the contract.
However, hotels may request that landlords partially relieve the rent under the principle of fairness if such hotels are closed or requisitioned due to mandatory administrative orders to prevent and control the outbreak.
- What if a hotel is requisitioned to prevent and control the outbreak of COVID-19?
At this stage, it is uncertain what are the standards of compensations for requisitioned hotels.
- Do hotels need to make contingency plans?
Yes, this is required. A good contingency plan should take into account below:
- Stay Informed: Identify authoritative sources on the pandemic prevention and development, and stay up to date.
- Cleaning and Sterilization: Upgrade cleaning methods, ensuring that employees and guests have easy access to handwashing facilities and/or hand sanitizers and that public surfaces such as counters, doorknobs, and elevator buttons are regularly disinfected.
- Epidemic Hotel Management: Take hotel staffs' temperature and conduct other necessary health checks regularly in addition to setting up a temporary quarantine area that is separated from restaurants, kitchens, and other public areas.
- Information Registration: Information of guests staying at the hotel during the COVID-19 should be collected in a proper and timely manner.
- Emergency Plans: Create protocol and guidelines for reporting, quarantining, and transportation of suspected cases and appoint at least one emergency liaison person.
It is also worth noting that the Ministry of Commerce released 16 guidelines to the service industry for COVID-19 prevention and control. Hotels can refer to these guidelines when making contingency plans.
- What government policies were issued to help hotels to recover from impacts of the outbreak?
The policies specifically designed for the hospitality industry can be categorized as follows: On the central level, income from public transportation services, life services (including accommodation and catering) and express delivery services to deliver daily necessities to residents during the outbreak period shall be exempted from VAT. For companies in the industries significantly affected by COVID-19 , such as the hotel industry, the maximum carry-forward period for losses incurred in 2020 will be extended from 5 years to 8 years. Extension of tax filing deadlines is also now available.
On the local level, exemptions from real estate tax and city and townland use tax have been introduced in certain provinces/cities; social insurance payment can now be extended to end of July in certain cities for industries affected by COVID-19; refund of unemployment insurance subsidy for accommodation companies are also applied to encourage no or minimum lay-offs in certain cities for industries affected by COVID-19.
- How should hotels prepare for the rebound?
Before a rebound occurs, hotels still need to adhere to the COVID-19 prevention policies, such as by cleaning and disinfecting public areas and guest room areas of the hotel on a regular basis, and monitoring the health status of the employees on duty to ensure safe and healthy conditions of the hotel.
More importantly, hotels should plan ahead, secure cash flow, such as by taking pricing strategies and cost control measures, and invest in future opportunities through staff training and possible property upgrades, to gain a competitive advantage when the market has made a full recovery.
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