Sourcing Academy

Lowest Rate or Rate Parity

Lowest Rate Parity In Your Hotel Contracts

In this video, you’ll learn about the concept of lowest rate parity when it comes to your group’s contract with the hotel. Understand why rate parity can be important to a lot of groups and hear how hotels need to manage this kind of request.

Overview

• “Lowest rate” or rate parity” addresses a circumstance in which the hotel would offer room rates over the contracted dates which are lower than the Group’s rate.

Group Perspective

• The hotel contract must contain all material terms which include a stated room rate or a stated room rate with a method of calculating a confirmed room rate if the meeting is many years in the future.
• There are many variations on this provision. Some state that the hotel cannot offer a lower rate during the contracted dates. Others state that the hotel cannot offer a lower rate to another group of comparable size, revenue spend, etc. Most also include exceptions for corporate volume rates and airline crew rates. Further, most provisions don’t guarantee that lower rates will be sold by third-party wholesalers such as Priceline, Hotels.com.
• The strength/weakness of the clause is dictated by current market conditions.
• If it is a “seller’s market”, Groups will likely see a clause that is tied to no lower rates offered to a “comparable group” over the contracted dates.
• If it is a “buyer’s market”, Groups may be able to negotiate a clause which states that the Hotel will not offer any lower rates over the contracted dates.
• Regardless of the provision, it is important to state what happens if the Hotel offers a lower rate in violation of the provision.
• The provision should state that the Hotel will either terminate the offering of a lower rate or provide Group’s attendees with the lower rate. Often it’s stated as “at Hotel’s option” or “Group’s option” as to which of the above actions will take place.

Hotel Perspective

• Hotels have no obligation to accept lowest rate clauses. If a hotel has 500 rooms and a group has reserved 100, the hotel has the right to sell its other inventory at whatever rate it chooses.
• Having the lowest rate clause may invalidate the entire agreement. If the rate clause requires the hotel to reduce the group rate to the lowest rate offered in the hotel, then there is no set minimum rate in the contract. Since the rate is a material term of the contract, if there is no rate set, the contract may be unenforceable.
• Hotels suggest that instead of trying to control the hotel’s rates, the group should try to control the attendee booking process. If the attendees are required or incented to book in the group block at the agreed rate, it will not matter if there are lower rates available at the hotel.