Hotel Contracts and Covid-19

Legal Insight

March 2022

Danae Stamarga, LL.M

Summary: Nowadays it is becoming more and more common for travel agencies or organizations to act as intermediaries for the booking of hotel rooms, while direct communication between the traveler and the hotelier tends to disappear. At the same time, the coronavirus pandemic has led to the cancellation of many bookings, whether bulk or individual, which had been made in this way. The question therefore arises as to the fate of these bookings in the future and the apportionment of the loss caused by cancellations for this (or similar) reason to the parties involved.

1. Introduction

Tourism is undoubtedly one of the most important and profitable activities for the country's economy. In the tourism industry, apart from hotels, travel agencies have played a very important role in recent years, as they are the intermediaries between the customer, who is the final recipient of the tourist product, and the hotels, airlines, etc. A new type of contract has thus emerged, which is the type of contract signed between travel agencies and hoteliers: hotel contracts. These contracts are intended to regulate the relationship between the two parties, from the moment the travel agency decides to make a reservation for a hotel room, with the ultimate aim of granting the use of the room to its customers. Those contracts are distinguished from the host contract, in which the hotelier contracts directly with the customer who uses the rooms for himself.

2. Hotel contracts are further divided into two types:

Α. The guarantee or commitment contracts, in which a certain number of beds is agreed between the hotelier and the tour operator for a certain period of time, for a certain total rent. In these contracts, the hotelier undertakes to grant the use of the agreed beds (at the same time as providing the associated services) to customers nominated by the agent and, conversely, the agent assumes the final obligation to pay the financial consideration for the beds in question, irrespective of whether or not he has made use of them (by granting use to his own customers).

Β. Allotment contracts, in which the main feature is the determination by the parties (hotelier and tour operator) of two quantitative limits of the number of beds rented, a maximum and a minimum, within one or more periods of time. In such contracts, the hotelier is obliged to keep the maximum number of beds reserved for his contractor, failing which he is obliged to compensate the travel agency, while the latter pays the rent only for the number of beds used, without any obligation to pay compensation for unused beds. It is not excluded that an allotment contract may specify only the maximum number of rooms, in which case the minimum number of rooms may be zero. However, it is not possible to specify only a minimum limit, because such a contract may be in the nature of a guaranteed reservation and not an allotment.

It is clear that in the first of the above cases the business risk of not covering the agreed beds is borne by the tourist agency, which must in any case pay the price. In the second case, the business risk is borne by the hotelier, who is obliged to reserve a certain number of rooms which may not be used by the agency's customers and may therefore remain vacant.

The main piece of legislation regulating the above contracts is the Regulation on Relations between Hoteliers and Customers, which was published in the Government Gazette as a decision of the General Secretary of the Greek National Tourism Organisation in 1976 and ratified by Article 8 of Law 1652/1986. Furthermore, since the hotel contract is a mixed contract, a contract of hire and a contract of work, with a predominantly leasehold character, the provisions on the lease of goods of the Civil Code also apply to it.

Those laws therefore provide for what happens if one of the parties to the contract defaults on the obligations under the contract.

Thus, if the hotelier breaches his main obligation to grant the use of the agreed accommodation, either because the accommodation was not available during the agreed period, or because of overbooking, or for any other reason, it is stipulated in Article 10 of the Regulations that he is obliged to ensure that the guests stay in another hotel of at least the same class, in the same town and with the same facilities and conditions as advertised for his own hotel, and if this is not possible through his own fault, he is obliged to ensure that the guests stay in another hotel of at least the same class, in the same town and with the same facilities and conditions as advertised for his own hotel, and if this is not possible through his own fault, he is obliged to ensure that the guests stay in another hotel of at least the same class, in the same town and with the same facilities and conditions as advertised for his own hotel. Moreover, in such a case, the tour operator may, under Article 584 et seq. in conjunction with Article 382 of the Civil Code, either claim compensation from the hotelier or withdraw from the contract and claim the return of any advance payment made (Article 12 par. 2 of the Regulation and Article 389 of the Civil Code, Corfu Court of First Instance 34/2021).

On the other hand, if the tour operator breaks his promise to use the agreed accommodation by clients whom he will nominate, the tourist operator is obliged to use the accommodation as defined in Article 12 par. 3 that the hotelier is entitled to compensation amounting to half of the agreed price per night for the remainder of the minimum number of beds agreed upon, in the case of an allotment contract, while in the case of guarantee contracts, according to Article 596(a) of the CC (Court of Appeal of Dodoni 2/1998), the agent is not released from his obligation to pay the rent (see below for the release period). In cases where the travel agent defaults on his obligation to pay the rent, the hotelier has the rights deriving from Art. 1, 345, 383 et seq. and 597, i.e. either to demand payment of the rent and default interest, or to withdraw from the contract and claim reasonable compensation (if the use of the rooms has not already been granted), or to claim damages, or to terminate the rental contract and claim compensation for early termination of the contract under the conditions of Article 597 CC (Court of Appeal of Crete 508/2002).

But what happens in cases where incidents which are outside the sphere of influence of both the hotelier and the tour operator, shake the contractual relationship and lead the parties to breach the obligations they have undertaken under the hotel contract?

One such incident is the coronavirus pandemic, as the drastic measures that have been and continue to be taken in an effort to contain it have led to the cancellation of most contracts, including hotel contracts, given that tourism is one of the sectors most affected by this pandemic.

Such incidents constitute cases of force majeure and, as is accepted, no one is liable for force majeure events (see also CC 330 liability in principle for fraudulent or negligent acts). Force majeure events are defined as those which are impossible for human forces to prevent. At the same time, such events may constitute an unforeseen change of circumstances which leads to a serious disturbance of the legal basis of the contract. In such cases, the contractual allocation of risks takes precedence over the remedial mechanisms of the Civil Code, so that the parties are in principle free, on the basis of the principle of private autonomy and with respect for the limits thereof, to regulate the allocation of risks in the relationship between them, notwithstanding the provisions of the Civil Code. Such a distribution of risks may either be expressly set out in the contract or may be inferred from it by interpretation in accordance with Articles 173 and 200 of the Civil Code. For that reason, it is common in practice, when concluding hotel contracts, to include clauses relating to force majeure and impossibility of performance and clauses relating to a material change of circumstances.

When, therefore, the hotel contract contains a force majeure clause, usually in the context of the General Terms and Conditions of Transactions prescribed by the tour operators, and such incidents take place at the tourist's destination, constituting a hindrance for the latter to carry out his trip, the obligations undertaken by the parties under the hotel contract cease to apply. In essence, the force majeure event gives the tour operator the right to terminate the contract without prejudice and for that reason he ceases to be obliged to pay the hotelier the agreed price for the rental of the hotel beds. It also entitles him to claim any advance payment he may have made for the reservation of the rooms. Examples of force majeure clauses include wars, terrorist attacks, strikes, natural disasters, epidemics and other measures taken by the public authorities which prevent tourists from travelling to their holiday destination. In any case, where a case of force majeure occurs, its invocation by the party affected by the situation in question shall require, whether or not expressly provided for in the force majeure clause, that the other party be notified within a short and reasonable time of the occurrence of the case of force majeure and of the impossibility of fulfilling the contractual obligations.

Cases of force majeure also justify recourse to the remedies of Article 388 of the CC, the application of which depends on the occurrence of exceptional and unforeseeable circumstances, such as that of a pandemic. Thus, the abovementioned article also justifies the extraordinary termination of a hotel contract for good cause on the basis of Articles 388, 288, 281 and 585 of the Civil Code, in particular where the force majeure situation extends beyond a reasonable period of time, so that it is not feasible to claim that the contract can be continued until its expiry.

However, it could have been agreed that in case of force majeure, both parties will make an effort to find solutions to limit the damage caused. One such solution could be, for example, to convert the guarantee contracts into allotment contracts. This would of course presuppose, on the one hand, that the hotel would operate normally and, on the other hand, that the tour operator could at least make a provision as to the minimum number of guests that could stay at the hotel. Another solution could be to convert the reservation into an open booking, perhaps for the next tourist season, without specifying a specific date of fulfilment, so that the deposit is not refundable but can be offset against future bookings. Moreover, it is likely that the advance payment was made to cover the costs incurred by the hotelier with a view to the imminent opening of the hotel, i.e. the preparation of the beds, the cost of renovating the facilities, the purchase of new equipment, etc. Finally, another solution could be for hoteliers to offer discounts to tour operators, particularly in cases where a large number of bookings are made.

The adoption of such solutions is also required on the basis of the principles of good faith and good commercial practice, as reflected in Article 288 CC.Let us not forget, moreover, that the legislator also moved in this direction when it stipulated, in Article 71 of the PNP of 13.04.2020 (Government Gazette A' 84), for contracts terminated between 25.02.2020 and 30.09. 2020, that if, following termination, 'one of the contracting tourism enterprises is obliged to repay to the other tourism enterprise any amount paid by the latter as an advance, guarantee, engagement, partial or total payment or in any other form, the debtor tourism enterprise may, notwithstanding the provisions of the contract or law applicable in each case, offer the other tourism enterprise an equivalent credit note instead of the repayment of the money. voucher] valid for eighteen (18) months from its issue. This highlights the importance of preserving the contracts, as it was this that prompted the legislature to take extraordinary measures, intervening in contractual relations in order to save them.

Regardless of the above, there is always the right to cancel the reservation provided by Article 13 of the Hotelier-Customer Relations Regulation, which states that "1) A Tourist Office or Travel Agency is entitled to cancel part or all of the agreed beds without the obligation to pay compensation, if the hotelier is demonstrably notified at least twenty-one (21) days before the agreed arrival of the customers (RELEASE PERIOD). 2) Similarly, the hotelier is entitled to be released at a time limit (RELEASE PERIOD) of twenty-one (21) days prior to each regular arrival of the guests, for those of the agreed beds for which there is no confirmed reservation with VOUCHER or ROOMING LIST. The above article, although it was initially accepted that it only applied to allotment contracts, since the issuance of the decision of the Second Ordinary Plenary Session of the Supreme Court No. 38/1997, it applies to both hotel allotment contracts and hotel guarantee contracts. 2 no longer applies to guarantee contracts, in which case the hotelier cannot withdraw without compensation, unless the contract provides that the tour operator has an obligation to confirm the reservation and the reservation is not confirmed for all the beds. Therefore, in the latter case, the hotelier may also withdraw without compensation if he notifies the travel agency 21 days in advance that he will not make available those beds for which there has been no confirmation of the reservation (Corfu Court of First Instance 34/2021). The same is accepted to be true for allotment contracts. Thus, this article does not give the hotelier the right to freely and without notice to terminate the hotel contract, but cancellation can only be made if by the 21st day before the arrival date of the guests, the tour operator has not confirmed the reservations. Any other consideration of this right would lead to uncertainty and insecurity in transactions (Court of Appeal of Crete 508/2002, Court of Appeal of Dodoni 122/2007). For his part, the agent in allotment contracts is not exempted from the obligation provided for in par. 3 of Article 12, mentioned above. On the contrary, in guarantee contracts the agent who informs the hotelier 21 days before the arrival of the customers that the reservation is cancelled under Article 13 para. 1 of the Regulation is completely exempted. This provision is intrastatutory, so the parties are free to agree either a longer or shorter period of notice in order to cancel the reservation.

3. Instead of an epilogue

The pandemic is now a reality that cannot be ignored when drawing up contracts and concluding force majeure clauses. It may therefore be difficult to trigger the application of force majeure clauses or Articles 288 and 388 of the Civil Code for contracts drawn up from now on, by invoking the fact of the pandemic as a force majeure event, unless new epidemiological data (e.g. virus mutations) lead to the adoption of measures that are less favourable than those already in place. Nevertheless, when an objective difficulty arises in the performance of a contract, in the context of the application of the principle of good faith, the contracting parties should make every effort to renegotiate and modify the terms of the contract in order to make it viable, and only when there is no possibility of saving it should they resort to the last resort of termination and reimbursement of any benefits already paid.