Legal issues of operating hotels during the pandemic
Legal issues of operating hotels during the pandemic
12 JUNE 2020 7:50 AM

An online forum by the International Society of Hospitality Consultants addressed the numerous legal issues hoteliers face as they reopen and operate during the coronavirus pandemic.

REPORT FROM THE U.S.—Hoteliers have had to adapt how they operate their properties during the coronavirus pandemic, and many of those changes are the result of new regulations.

During an online legal forum presented by the International Society of Hospitality Consultants and the Castell Project, four hospitality attorneys addressed many of the legal issues hoteliers face as they reopen and operate.

Government aid
There was a lot of excitement initially about the CARES Act and its Paycheck Protection Program, said Samantha Ahuja, shareholder at Greenberg Traurig. However, when the rules and guidance came out, hoteliers became a bit leery of how it would benefit them, she said. With the recent modifications made to it, it did become more advantageous to hotel companies, such as extending the time period and ways the program could be used.

“Ultimately, any help is good help when you're in the midst of what we're in the midst of,” she said. “I don't think it was as geared toward hoteliers as we initially hoped, but we're seeing some positive things come of it as hotels start to think about opening or reopening.”

It’s been a net positive for those who were able to take advantage of the PPP loans, said Cecilia Gordon, director at Goulston & Storrs. Once the Main Street lending program rolls out, it will become increasingly positive. The changing of the rules midstream on the PPP loans was a real hardship as many people felt they couldn’t take advantage of it under a capital analysis, she said.

“I will say one thing—I was very heartened by how the outpouring of commentary from the industry actually led to changes in the PPP law,” she said.

Congress listened to the concerns of the hospitality industry and made changes in a short period of time, Gordon said. It’s encouraging to see people speaking out and calling their representatives to continue to make changes so the program will be better for the hospitality industry, she said.

As Accor operates in several countries around the world, the responses from governments has varied, said Rhonda Hare, general counsel, Asia/Pacific, at Accor. In China, which was hit by COVID-19 first, the government told companies they had to continue paying everyone the same amount of money even if they were not working and there was a lockdown, she said. The Australian government provided support similar to how the U.S. and several European nations did.

In some countries in Southeast Asia, such as Thailand, the governments provided subsidies, but they were basically minimum wage, so they were not much, she said.

Liabilities in reopening
The legal issues surrounding reopening a hotel during this pandemic depends on how the hotel is structured and requires consideration of ownership, operators, the management contract, whether the owner is the one running the hotel and where the hotel is located, said Meghan Cocci, co-chair of the hospitality, leisure and gaming group at Latham & Watkins. The laws are different everywhere, and they are changing daily. Hoteliers in California struggled because they thought they were part of stage two in reopening the state, but it was only hotels for essential workers that were in stage two and leisure travelers weren’t until stage three, she said.

Many of her firm’s owner clients are becoming more engaged in the reopening of their hotels than they had been when they were open, and they handed the keys over to the operators and trusted things would go smoothly, she said.

“Everyone’s in this game,” Cocci said. “That’s a theme we’ll see throughout today, that it’s not just the owner sitting back and relying on their managers. You have owners and asset managers asking a lot of questions about the law, interpreting the law and how every is going to comply with it because things are changing so quickly and everyone is just running to keep up.”

Gordon said she sees two main challenges for hotels as they reopen. One will be the coordination between local requirements and brand requirements. Hotel brands have done a good job of getting their arms around a package of requirements and materials for their franchisees and owners regarding how they’re supposed to safely reopen their hotels, she said.

However, how that all interfaces with their local regulations and the phasing of reopenings will be a challenge for owners and managers, Gordon said. People have been collaborative to date, and she expects brands will continue to be understanding, but these conflicts will arise.

The other issue Gordon said she expects to see is whether guests will be comfortable staying at a hotel as there are a multitude of regulations that vary by location instead of one set of standards.

“They're going to see a whole different bunch of things being done at different hotels,” she said. “I think it will keep occupancy lower than it probably needs to be for a period of time.”

Lawsuits against a hotel by either guests or employees who have contracted COVID-19 are going to be difficult to pursue, Cocci said. From the guest perspective in the U.S., it’s going to be a tough hurdle for guests to show they were infected at the property and there was negligence on the hotel’s part and then wrap it together in a tort context.

For employees pursuing such a claim, that will be more interesting because employees are on properties for hours and working around several guests, she said. California is looking at legislation that would create strict liability for employees who contract COVID-19 for the purposes of workers’ compensation,. At the same time, there are members of Congress looking at making it harder to pursue such lawsuits to protect businesses, she said.

Taking temperatures
Gordon said she was on a call recently addressing whether it’s permissible to take guests’ temperatures because of privacy issues, she said. The question struck her because hotels deal with personal and private information all the time, and the industry has been improving its data protection in recent years, she said.

“To me, it seems as though it's another piece of personal data about a guest and it would fall within the rules that people have been following about keeping that data secure,” she said.

However, Gordon said she’s not a Health Insurance Portability and Accountability Act lawyer, and she does have questions how taking temperatures interacts with health care privacy rules.

The issue isn’t necessary always the actual temperature taking but what hoteliers do in the event a guest has an elevated temperature, Ahuja said. It’s also not just about the guests but who they are traveling with as well. Disclosure is also important: It’s about what hoteliers are telling guests about this before arrival, she said.

This would require a state-by-state analysis because innkeeper laws vary by state, which means their obligations are not all the same, Ahuja said.

A second wave
If the owner requires hotels to close, all hotels are going to close, Cocci said. If the government doesn’t require that, it comes down to a question of the safety and security of guests. That’s when it’s time to turn to the management agreement and look at the provision addressing this, she said. In most agreements, the manager is the one that gets to pull the trigger on that because they are the ones running the day-to-day operations, but it’s different in every case.

Based on what they’ve seen during the first wave, in which many owners and managers collaborated, it’s not just as easy as the manager pointing to the provision alone, Cocci said. There are many concerns, such as lenders, to consider.

“I would expect, again, you're going to see collaboration on the timing and decisions there, because first and foremost, the safety and security of everybody is something where the managers and owners are aligned,” she said.

It’s a big call for the operator to close a hotel if the owner doesn’t want to, Hare said.

“I think it really comes down to a very pragmatic conversation, which is you’re going to have no revenue but you’re going to have to pay the bills,” she said.

Accor has had hotels that stayed open over the course of the situation in which owners funded the working capital as they felt that was the right thing to do, Hare said.

“But it would be madness, I would say, for an operator to just close a hotel if there’s no legal requirement to do so, if the owner says no,” she said.

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