Corporate Governance

INSIGHT: Associations Face Damage Control After Canceling Convention Contracts

April 30, 2020, 8:01 AM

One of the most daunting issues for nonprofit attorneys during the pandemic has been the cancellation of association trade shows, meetings and events all over the world. In late February and early March, many associations were looking at hotel and convention agreements that had been signed years prior and reading force majeure clauses for the first time.

Most of these clauses raised more questions than answers. While the issue of what constitutes a force majeure event will be litigated in court for years to come, associations now need to be looking forward and taking steps to protect their organizations in the post-Covid-19 era.

Many organization leaders now find themselves in one of several situations: (i) conducting damage control after canceling an event; (ii) assessing the pros and cons of having an event in 2020; or (iii) determining how to protect their organization when planning future events.

Conducting Damage Control After a Canceled Event

Associations that have canceled their trade shows, conventions, or events because of Covid-19 now need to tie up loose ends and determine how to move forward without the revenue of their industry event. While hotel and convention center agreements have been canceled, other third-party vendors need to be notified. Associations should be looking at all event-related contracts to determine which notices needs to be provided, and what damages or direct costs might need to be paid, to these vendors.

Associations should be working with their hotels to ensure that all attendees have received consistent notification that their reservations have been canceled and their refunds processed. Association leadership likely will want to speak with event sponsors to determine which sponsorship fees need to be refunded or transferred to future events.

Associations should review their event cancellation insurance policies (if any) to determine if they have coverage for damages incurred due to the Covid-19 pandemic. Those that purchased communicable disease insurance protection may be covered under these policies. However, unfortunately, it appears that many associations either do not have event cancellation insurance or, for those that have coverage, it doesn’t insure for loss related to the coronavirus.

Associations also should be looking at relief programs offered by the federal, state and local governments. Two of the most publicized relief programs are the Payroll Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) Program. These programs are funded through the recently amended CARES Act. While the PPP is not available to 501(c)(6) organizations, the EIDL program provides low interest loans to associations and other private nonprofit organizations of up to $2 million. Additionally, applicants can receive a grant for up to a $10,000 after applying for an EIDL loan.

The CARES Act also provides a refundable payroll tax credit to nonprofit organizations with operations that have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings.

Finally, many states, counties, and cities are offering emergency loans and grants to organizations that have been affected by Covid-19. These programs are not as well publicized as the federal programs, and therefore, many organizations are not aware they exist. For example, Montgomery County, Maryland, established a $20 million Public Health Emergency Grant Program to assist small businesses and nonprofits who have been negatively impacted by Covid-19. All organizations should take time to research the local and regional relief programs that may be available to them.

Assessing Whether to Have an Event in 2020

It is unclear how Covid-19 will affect large events throughout the summer and fall. It is possible that many events will need to be canceled due to ongoing restrictions on large gatherings and travel. Other events may occur, but in a modified manner.

When determining whether or not to have an event, organizations should first reach out to hotels and convention centers to determine available options. Hotels may agree to lower the room block, attrition rates and/or food and beverage minimums. Some hotels and convention centers may be flexible to work with associations that would like to conduct both a reduced in-person and virtual conference. Hotels also may be amenable to moving the event to a future date without penalty.

If an association decides to hold an event, it should work with the hotel to safely maximize attendance. People will not attend an event if they do not feel safe. Therefore, the organization and hotel/convention center should be looking for ways to maintain social distancing when possible, heighten cleaning measures and provide access to gloves, masks and hand sanitizers to those attendees who want them.

Additionally, organizations should frequently communicate with members to educate them about the safety measures they and the hotel/convention center are implementing.

Ultimately, holding a large event in 2020 will come with heightened risk. Before moving forward, we recommend that all organizations convene with their legal counsel and leadership to determine if the benefits outweigh the risks.

Protecting Your Organization for Future Events

Looking ahead to future conferences, organizations need to learn from the Covid-19 pandemic experience and take steps to protect themselves. These include:

  1. Creating flexibility in hotel and convention contracts. Force majeure and cancellation clauses are now going to be heavily negotiated. Gone are the days when force majeure clauses are considered “boilerplate.” Organizations should try to use broader language in these clauses to safeguard against epidemics, pandemics, travel restrictions and other events beyond their control.
  2. Assessing your event cancellation insurance. Most organizations will not be able to obtain event cancellation insurance that specifically covers Covid-19. However, each organization should discuss its options with its insurance broker and make an informed decision on what type of coverage, if any, gives it the protection it needs, particularly regarding communicable diseases.
  3. Reviewing ancillary contracts. Many event management companies and event vendors will be reviewing and revising their cancellation provisions based on experiences during the Covid-19 pandemic. Make sure all event-related contracts are reviewed to ensure that organizations are not hit with surprise costs or damages if an event is canceled.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Richard Bar is a principal at GKG Law and leads the firm’s Association Practice Group. He serves as general counsel to his for-profit and nonprofit clients, advising in all areas of the law, including corporate compliance, corporate governance, nonprofit law, antitrust, contracts, corporate transactions, real estate, employment, and intellectual property.

Katharine Meyer is a principal at GKG Law and a member of the firm’s Association Practice Group and provides legal advice to nonprofit organizations and for-profit companies. She has counseled clients on issues regarding credentialing, contracts, discrimination, employment, ethics, intellectual property, social media, antitrust compliance, corporate governance, and corporate transactional matters.

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