The Impact of the Covid-19 Pandemic on the Guarantee Hotel Contracts in Greece

Tuesday 8 June 2021

Dr Artemis (Diana) Divrioti

PhD University of Athens, Greece, Attorney at Law

artemis.divrioti@gmail.com

Preamble

The totally unexpected Covid-19 pandemic has had a major impact on the worldwide economy and on international markets. Among the markets most affected globally by the Covid-19 outbreak is the tourism/leisure industry. The lockdown restrictions - the result of government efforts to keep the pandemic’s spread under control - led to the suspension of hotel operations as well as prohibitions on international flights.

As countries around the world have started to gradually lift lockdown restrictions, Greece’s government has also announced that incoming tourists will be accepted into the country from 15 June from selected countries based on ‘epidemiological criteria’. Seasonal resort/hotels will re-open from 15 June while city hotels operating all year round re-opened from 1 June.

Despite the fact that hotels have started to operate again, under strict hygienic restrictions, the tour operators and the hotels find themselves dealing with mass cancellations of pre-booked ‘tourist packages’. In this article, we will determine the impact of Covid-19 on the type of contract known as 'guarantee hotel contracts' in Greece.

Guarantee hotel contracts

Hoteliers usually lease their rooms to tour operators. The hotel accommodation contracts are governed by Regulation No 503007/1976 issued by the Greek Tourist Authority (EOT) under the title, ‘The relationships between the hoteliers and their clients’ (EOT Regulation). According to Article 8 of the EOT Regulation, the hotel contract usually takes the form of a guarantee contract or of an allotment contract. The parties may in any case decide on a different type of the hotel contract according to the freedom of contracts which prevails under Greek law.

The guarantee hotel contract is defined as a hotel accommodation contract which refers to a specific fixed number of rooms. In the case of a guarantee contract, the tour operator is obliged to pay the full price of the reserved rooms even if they did not succeed in selling them to their clients, the tourists. Simultaneously, the hotelier is obligated to keep the guaranteed rooms free for the tour operator for the whole duration of the hotel contract. This type of hotel contract leads to a tighter bond between the parties as the tour operator leases a certain number of rooms, which in any case must be paid for. Thus, there is a strict liability of the tour operator which leads to his obligation to compensate the hotelier for the unsold/unused beds.

On the contrary, according to Article 11 of the EOT Regulation, it is regarded as an essential element of the allotment contract that the parties, for example the tour operator and the hotelier, agree on a minimum and maximum number of overnights per month within the contract period. So, there is no obligation for compensation for the unsold beds, provided that the tour operator manages to fill the minimum number of the agreed beds.

Term to release the tour operator from the guarantee contracts in case of ‘force majeure’

Very often the hotel contracts include the so-called ‘General Business Terms and Conditions’ (General Terms), which usually are unilaterally determined by the tour operators in advance, and the hoteliers do not have the possibility to change their content. Once the hotelier accepts the General Terms, they become part of the hotel contract, which are binding.

As we have discussed, in the case of guarantee hotel contracts, there is a strict liability of the tour operator to compensate the hotelier in the event that they do not fulfil their obligation to sell the pre-booked rooms. There is an exception to this, however, in cases of force majeure. The General Terms usually include a condition outlining that the tour operator is released from any liability for the guaranteed rooms if these events occur.

According to the subjective theory, which prevails in the Greek jurisdiction, an event can be determined as an event of force majeure when it could not have been foreseen and averted even by measures of extreme care and prudence from the part of the perpetrator.[1]

Such a general term may define that in cases of force majeure the guarantee obligations shall cease to apply with immediate effect and become invalid for the duration of the force majeure event. These events could prevent the implementation of the tour operator’s ‘tourist package’ or programme, as planned at the destination concerned, as well as seriously reduce the desire of tourists to organise and plan trips to the destinations affected by the events of force majeure. Examples of force majeure events are indicatively mentioned, including the following: war, strikes, natural disasters, acts of terrorism or other acts of violence, epidemics, any governmental measures or restrictions, economic circumstances, political events or crises. All of these significantly reduce the willingness of the tour operator's clients to book or implement a trip at the destination where the hotel is situated.

In such events of force majeure, the tour operator will not proceed with any agreed advance payments for the early bird bookings and any advance payments already paid by the tour operator to the hotelier shall promptly be reimbursed by the hotelier to the tour operator. It can additionally be agreed between the parties that in any case of force majeure they shall cooperate in good faith and seek solutions to reduce their losses as much as possible. One solution would be the alteration of the hotel contract from a guarantee contract to allotment, though this solution would only be possible in cases where the tour operator could at least make a prediction on the minimum number of overnights per month.

The cancellation right granted by Article 13 of the EOT Regulation

The aforementioned provision for the events of force majeure included in the General Business Terms and Conditions shall be distinguished from the cancellation right granted to both the tour operator and to the hotelier through Article 13 of the EOT Regulation. The Decision No 38/1997 of the Supreme Court in Greece (Areios Pagos) has interpreted the above article regarding the guarantee hotel contracts as follows. The tour operator has the right to cancel part or the total of the reservations, without any obligation to compensate the hotelier, if the hotelier has been promptly notified at least 21 calendar days before the agreed arrival dates of the clients/tourists (release period). The parties have also the right to agree on a shorter or on a longer period than the 21 calendar days set by Article 13 of the EOT Regulation.

The impact of the Covid-19 pandemic on the guarantee hotel contracts

In the light of the above considerations, the tour operators have two options in order to achieve their rescindment from the guarantee clause of the signed hotel contracts. The first option would be to invoke the provision included in the General Business Terms and Conditions so to cease any guarantee obligation of the tour operator with immediate effect. The second option would be, especially in cases where such a general term has not been concluded in the hotel contract or it is invalid, to invoke the aforementioned cancellation right granted by Article 13 of the EOT Regulation by fulfilling all the legal prerequisites.

As far as we are aware, the major tour operators have been released from the guarantee obligations specified in the signed hotel contracts by implementing the provision included in the General Business Terms and conditions. The pandemic and the relative governmental restrictions are considered as events of force majeure, which constitute grounds for the discharge of the tour operator towards the hotelier. Indeed these conditions are ‘unusual, regardless of the will of the entrepreneur and whose consequences could not been avoided, even though every possible diligence has been shown, except by disproportionate sacrifices’.[2]

Moreover, since the majority of the advance payments are usually paid by the tour operators to hoteliers by the end of March/the touristic period, the tour operators did not proceed with any advance payments, which have been agreed in the guarantee hotel contracts. Though, in the minority of cases, where the advance payments have been already paid, the tour operators did not ask for the reimbursement of the payments by the hoteliers. Instead it was agreed the advance payments would be set off with future bookings.

Taking into consideration the requirements of good faith and business morals, the contractual parties, that is, the tour operator and the hotelier, shall cooperate to seek ways to keep their losses as low as possible. This would also be in favour of the national economy, as tourism generates over a quarter of Greece’s gross domestic product. Possible solutions could be proposed, including:

  • an alteration of the guarantee contracts to allotment hotel contracts, which give both parties the right to apply a flexible accommodation programme;
  • an agreement on the minimum and the maximum number of overnights per month;
  • an agreement regarding a shorter release period than the period of 21 calendar days set by Article 13 of the EOT Regulation, in order to exercise their mutual right to cancel the overnights;
  • a very crucial point, from the part of the hotelier, could be an agreement between the parties that the tour operator shall proceed with the advance payments as soon as the tourist/client of the tour operator buys the ‘tourist package’ and not to pay the hotelier after the departure of the tourist/client from the hotel; 
  • the tour operator could cease seeking reimbursement of the advance payments already paid to hoteliers. Instead of that, the parties could agree to set them off with future bookings even for the next touristic period; and
  •  the hoteliers could propose special offers and prices to the tour operators especially for mass reservations.  
 

[1]  Stathopoulos M., Contract Law in Greece, second edition, Kluwer Law International/Ant. N. Sakkoulas, p. 171 - 172.

[2]  ECJ of 17.12.1970, C-11/70 (consideration 23), ECJ OF 13.10.1993, C-124/92, coll. 1993 I, 5061 (consideration 11), Stathopoulos M., Contract Law in Greece, second edition, Kluwer Law International/Ant. N. Sakkoulas, p. 172.