COVID-19: Shutdown Letters for Hotels Ceasing Operations

Amid the COVID-19 pandemic, occupancy rates at many hotels across the country have plummeted to the single digits.  As states implement shelter-in-place orders restricting travel and transient lodging, hotels are being forced, or finding it prudent, to temporarily close to the public.  When a hotel closes, third party managers and/or franchisors will often seek to sign an agreement with the hotel owner to govern the transition to closure, the period during closure, and the re-opening of the hotel. 

These shutdown letters and closing agreements raise several issues for consideration, including:

• Reduction of services and expenses
• Cancelation of reservations
• Which employees are considered essential
• Other employment and labor matters, including decisions regarding paid and unpaid leave/furlough and employee benefits
• Funding working capital during the period of closure
• Brand concerns
• Use of the hotel by third parties during the period of closure
• Reporting obligations during the period of closure
• Fees and reimbursable expenses during the period of closure
• Timing for re-opening
• Future bookings and reservations
• Development of a re-opening plan
• Public relations and marketing

It is important to understand the significance of these letters, and the impact they may have on your rights and obligations.  If you or your company are contemplating signing a shutdown letter, please reach out to a member of your Honigman team to see how we can help.