Renegotiating a done deal
Posted by markharrison on December 8, 2006
I was called upon this morning to advise a on a difficult negotiation.
The core difficulty was that the deal (not a property deal) had already been done, and the contracts had been signed, but then things had changed.
Without naming names or revealing too much in the way of details, here’s what had happened:
- A local club is planning to have a meeting later in the year
- About a year ago, they had spoken to a local hotel, and booked up, in advance, 40 rooms at £150 / room
(against a list price of £180 / room)
- At the beginning of this month, the hotel in question dropped its prices to a standard rate of £135.
- The hotel also has a “senior citizens discount” rate of £95.
- If the club cancels now, it pays a cancellation fee of £500 (across the 40 rooms)
Ouch, this means that the club is committed to pay a rate HIGHER than the normal rate – as such, it’s having trouble shifting the rooms on to the club members🙂
This is where I was called in by a friend of mine, who is club Chairman.
The key to this was in the detail. The club in question is all age, but about 50% of its members would qualify for the reduced rate.
The solution was to approach the hotel, explain that we COULD cancel, and advise only the older members to re-book. In this case, the hotel would receive £500 ( or £12.50 per room) in cancellation fees plus £95 per room… giving a total of £107.50 per room income for them.
OR we would re-sign the contract at £120 / room, instead of £150 / room. Obviously, the club’s package deal would only appeal then to the YOUNGER members, with the older ones booking directly.
Job done, put that way, the deal was cut, and everyone is broadly happy.
One of the key things about negotiations is to look at the penalties for non-compliance. Sometimes, you sign a deal in good faith, but then the situation changes (in this case, the hotel had dramatically reduced its rates – the property equivalent would have been a market crash.)
In these cases, you have a decision – do you go ahead and take the (poor) deal, or do you look to cancel and pay the penalty. A lot depends on whether you want an ongoing business relationship with the person / business in question. In this case, the club isn’t likely to run another big event in that area for 15-20 years (the event in question moves – last year the Midlands, the year before that Newcastle, the year before that Wales.)
If you want to have an ongoing relationship, it’s normally better to stand by what you’ve agreed. If you’re happy this is a one-off, and it won’t harm your reputation, then remember that penalties are sometimes less bad than going through.
The courts very, very, rarely enforce “execution” of a contract if penalties have been specified in the contract, and you do pay those penalties.