OYO suspends payment of monthly revenue to hotels; invokes force majeure

Hospitality firm OYO said it is suspending payment of monthly benchmark revenue to its hotel partners as it is finding impossible to discharge its obligations under the master service agreement due to Covid-19 pandemic.

In light of this pandemic and various restrictions issued by the governmental authorities, your hotel's revenue has been significantly and adversely impacted and it is unlikely to improve in the next few months, OYO said in a letter to hotel owners.

This abrupt, extra-ordinary and unprecedented drop in your hotel's revenue as a result of the Covid-19 can hardly be considered to be in the ordinary course of business. OYO's performance and obligation in relation to the benchmark revenue under the agreement has become extremely onerous and commercially impracticable, it added.

This letter provides notice of the occurrence of a 'force majeure' event effective from March 12, 2020 on account of the outbreak of COVID-19 being an extraordinary circumstance, which is beyond our control and which could not be avoided by any amount of foresight and care and its severe impact on our performance under the agreement, the hospitality firm said.

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"In these exceptional and trying circumstances, you will appreciate that it is impossible for OYO to discharge its obligations under the agreement including, inter alia, the provisions of benchmark revenue," the letter said.

Consequently, OYO will find it virtually impossible to continue to operate the agreement from the point of view of the object and purpose in relation to which the agreement was first executed.

"As such, OYO is left with no option but to invoke Force Majeure in as much as the pandemic and related consequences have adversely impacted the operation of the premises and the business of the Hotel and to put you to notice that it is constrained to exercise its rights thereunder to suspend payment of the monthly benchmark revenue and/or any other amounts payable to you under the agreement," the letter said.

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In this regard, and in the interim, "we propose a revenue share model effective March 12, 2020 whereby our commercial engagement, in supersession of the existing commercial terms, under the agreement will be 10 per cent of net revenue," it noted.

OYO said it is regularly reviewing the position and will communicate once the Force Majeure event / COVID-19 situation has ceased and when it will be able to resume performance of its currently affected obligations under the agreement, the letter said.

Commenting on the development, Federation of Hotel & Restaurant Associations of India (FHRAI) Vice President Gurbaxish Singh Kohli said: "The hotel industry is in the midst of a massive economic catastrophe and OYO's behaviour is absolutely below the belt".

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The company has decided to invoke the force majeure clause, via which they are completely suspending payments to hotels and which isn't even in the agreement that hotels have signed, he added.

"Oyo has anyways been regularly defaulting on payments even much before the pandemic and is now using it as an excuse to completely back out of their agreements," Singh said.