OYO invokes “force majeure” clause, ceases all payments to partner hotels: Report

After OYO raised concerns over declining business last week, asking its partner hotels to expect delays in payments, it has come out with the imposition of the “force majeure” clause from its contract, ceasing all payments to hotels for the foreseeable future.

In a letter to partner hotels accessed by Economic Times, OYO remarked that revenues for the company have abated due to coronavirus, and are likely to remain the same way. Therefore, it is forced to invoke the “force majeure” clause from its agreement with partnering hotels, halting all payments for the time being.

Instead of the pre-existing model, in which the company offers a minimum guaranteed amount to owners(owners can avail an additional percentage of revenues if the business exceeds a certain benchmark), regardless of the business performance; OYO has proposed a different mode, where it will share 10% of the net revenue of a hotel, besides sales and marketing costs, channel charges and customer acquisition expenses. Thus, the safety net that OYO provided earlier is gone, something that the declining hotel business desperately needs.

Hotel owners have criticised the company heavily on the grounds that there was no force majeure clause in the agreement they signed, deeming the decision to be unfair. Federation of Hotel & Restaurant Associations of India (FHRAI) has also stated that it has received a lot of complaints from OYO’s partner hotels.

The company also said that it holds the right to terminate these partnerships if situation is to worsen, also stating that it will not be able to make payments under the new agreement in case hotels are being used for essential services under the government or healthcare authorities orders.

OYO’s business has been severely hit by the ongoing Coronavirus outbreak globally. And that is largely because the company is dependent on arguably the worst hit sector during these times — travel and hospitality. However, OYO was surrounded by clouds of uncertainty long before COVID 19 became a thing, laying off thousands at the start of the year. Ritesh Agarwal, founder of OYO, has decided to forego his salary for the whole year to help the fight against falling business. But only time will tell, whether that would be enough.