OYO is invoking the ‘force majeure’ clause in its contracts with property owners
Hotel owners say that the clause which deals with natural disasters was not a part of the agreement
OYO has also set up a global fund to help hotel owners
Citing economic slowdown and revenue impact from the Covid-19 pandemic, hospitality unicorn OYO has decided to suspend the payments of hotel partners. The SoftBank-backed startup is now invoking ‘force majeure’ clauses from the agreement between OYO and property owners.
According to an ET report, OYO has sent a letter, dated March 28, to hotel partners describing the situation and the impact. OYO stated that as revenues of hotels have dwindled and are unlikely to improve in the next few months, it has decided to exercise ‘force majeure’ rights and suspend payments of the monthly benchmark revenue.
Under the benchmark revenue system, OYO pays these hotels a minimum guaranteed sum which is independent of the revenue generated by these hotels. Additionally, any other amounts payable to hotels have also been suspended. For instance, OYO shares a percentage of the total revenue generated by the property with the owners if it crosses a certain target. The company has also foregone this payment as well.
For the future, OYO has also devised a new revenue-sharing mechanism which will supersede the existing provisions. According to new norms, OYO has given itself the authority to deduct around 10% of the revenue generated by the property. The cut is in addition to the charges which OYO takes from hotel owners in the name of marketing, challenging, and customer acquisition.
Hoteliers In Distress
The development has come a day after OYO announced that it has set up a global welfare fund towards benefit and welfare of the employees at OYO properties, asset partners and their staff members impacted by Covid-19. OYO founder and group CEO Ritesh Agarwal has also forgone his salary for the year.
While OYO is claiming to be helping hotel-partners, this change in the contract isn’t much appreciated by the owners of properties. Also, many hotel owners are now saying that ‘force majeure’ clause was not there in the original agreement so OYO can’t force this on them now. They even alleged that OYO never gave them these benefits even when sales were soaring prior to the lockdown.
Vice president of Federation of Hotel and Restaurant Associations of India (FHRAI) Gurbaxish Singh Kohli also raised questions on OYO’s claims. He said that it is strange that OYO has made tall claims in the media and to the government of offering free rooms for relief purposes which were without the express permission of the property owners.
“On the other hand they are preying on these owners and partners at such a trying time for our industry,” Kohli noted.
To support these property-owners, FHRAI had reported that Oyo is now coercing hotels to agree and renegotiate to arbitrary and unreasonable terms by citing the pandemic and the ‘force majeure’ clause.
On its part, OYO has said that the company has the rights to completely terminate these agreements if the situation worsens. Further, OYO said that it may not also be able to make payments under the proposed new agreement if the hotels are being utilised to support essential services under the orders of the government or healthcare authorities.
