SoftBank-backed Oyo has written to hotel owners invoking the ‘force majeure’ clause in their agreements, with the Covid-19 pandemic severely impacting business at the hotels. ET has seen a copy of the letter dated March 28.
Oyo said in the letter that since hotel revenues have dwindled and are unlikely to improve in the next few months, it was constrained to exercise ‘force majeure’ rights in suspending payments of the monthly benchmark revenue or any other amounts payable to them.
But many angry hotel owners said Oyo could not invoke ‘force majeure’ since the clause was never included in the original agreements.
Oyo did not respond to ET’s queries till the time of going to press.
Under the benchmark revenue arrangement, or the minimum guarantee model, owners are to be paid a minimum amount regardless of the business generated. Also, if Oyo crosses a pre-set sales target from a hotel, it shares with the owner a part of the excess amount.
Revenue-Share Model Proposed
In the letter, Oyo has proposed a revenue-share model to supersede the existing arrangement. As per the proposed new agreement, it will deduct 10% of net revenue generated from an accommodation, besides sales and marketing costs, channel charges and customer acquisition expenses.
Apex industry body Federation of Hotel & Restaurant Associations of India (FHRAI) said it had received complaints from hotel owners with regard to the letter. “We have received reports that Oyo is now coercing hotels to agree to arbitrary and unreasonable terms by citing the pandemic and the ‘force majeure’ clause,” said Gurbaxish Singh Kohli, vice president of the industry body.
A Mumbai-based hotel owner who has received the letter and has two properties with Oyo said this was not the first instance of Oyo changing contracts unilaterally.
“How can the ‘force majeure’ clause be invoked if there wasn’t any such clause in the agreement that we signed with them? When sales were booming, they never gave us the due amount,” he added.
Dilip Datwani, another hotel owner, said he is planning to write to the company. “They don’t want to pay us, and are taking hotel owners for a ride.” Oyo said it also reserved the right to terminate these arrangements if the situation worsened. It further said that it may not be able to make payments under the proposed new agreement if the hotels are used to support essential services under government orders.
Oyo said it also reserves the right to completely terminate these arrangements if the situation worsens and it may not be able to make payments under the new agreement if the hotels are being utilised to support essential services under the orders of the government or healthcare authorities.
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