Oyo invokes ‘force majeure’ clause on agreements of hotel owners

NEW DELHI: Softbank-backed Oyo has shot off a letter to hotel owners invoking ‘force majeure’ clauses on their agreements as the Covid-19 pandemic has severely impacted the business of their hotels.

ET has seen a copy of this letter dated March 28.

Oyo states in the letter that since the hotel revenues have dwindled and are unlikely to improve in the next few months it is constrained to exercise its ‘force majeure’ rights in suspending their payments of the monthly benchmark revenue or any other amounts payable to them.

But, angry hotel owners said Oyo cannot invoke ‘force majeure’ as the clause was never included in the original agreements.

Oyo did not respond to ET’s queries till the time of going to press.

Owners under the benchmark revenue arrangement or the minimum guarantee model are to be paid a minimum guaranteed amount regardless of the business generated.

If Oyo crosses a set limit of sales generated for the hotel then it also has to share with owners a percentage of the excess amount under the model.

Apex industry body Federation of Hotel and Restaurant Associations of India (FHRAI) said it had received owner complaints on the letter.

“We have reports that Oyo is now coercing hotels to agree and renegotiate to arbitrary and unreasonable terms by citing the pandemic and the ‘force majeure’ clause,” said Gurbaxish Singh Kohli, vice president of the industry body.

“It is strange that Oyo has made tall claims in the media and to the government of offering free rooms for relief purposes which was without the express permission of the property owners while on the other hand they are preying on these owners and partners at such a trying time for our industry,” he added.

A hotel owner from Mumbai who received the letter and has two hotels with Oyo said this is not the first instance of Oyo changing contracts unilaterally. He said Oyo owes him Rs 12 lakh for the last six months.

“How can the ‘force majeure clause’ be invoked if there wasn’t any such clause in the agreement 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 money and are taking owners for a ride.”

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.

The letter goes on to state that Oyo proposes a revenue share model effective to supersede the existing arrangement under which it will charge them 10% of net revenue generated on accommodation besides other sales and marketing costs, channel charges and customer acquisition expenses.

Meanwhile, in an announcement on Thursday, Oyo said its founder and CEO Ritesh Agarwal will forgo 100% of his annual salary for the rest of the year. Other members of its executive leadership team are also taking voluntary pay cuts, the company said.

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