Many hotel contracts have a food and beverage (F&B) clause that requires a group to generate a minimum amount of food and beverage revenue through the course of the meeting. The F&B clause goes on to state that if the minimum amount of revenue is not generated, the group is responsible for making up the difference. The F&B clause will require the shortfall plus the tax.
Do not agree to a contract that requires monetary damages based upon lost revenue. In the case of a breach, F&B damages should be based upon lost profit. If a group signs a contract with a $50,000 minimum, but only realizes $40,000, the hotel has lost the benefit of the $50,000. However, it does not make sense to pay for the full amount of $10,000 (difference between the minimum and the actualized expenditures). Despite the shortfall, the hotel never had to order the food, pay any staff to prepare it, or serve it.
Calculations for damages should be based upon the amount the hotel did not realize minus any expenses that would have been incurred if the minimum had been met. A large number of hotels agree that 35 percent is the profit margin on food & beverage. Therefore, a group should only agree to pay 35 percent of the shortfall.
It’s also important to include the right to work with the chef on customized menus to best meet your convention budget. An acceptable minimum negotiated to keep the F&B expenses budget does you no good unless you insist on including customized menu verbiage as well.
Before agreeing to pay taxes on monetary damages, check with the state of which your meeting is being held, to see if taxes are actually required. If a portion of our minimum requirement was never purchased, then nothing was ever sold. Monetary damages are nothing more than payment of liquidated damages that both parties have agreed to as a penalty. It is very seldom that sales tax is owed on liquidated damages.
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