Guidance on how to handle booking cancellations due to Covid-19
With the government advising the public on 16 March 2020 to avoid “all but essential travel” to limit the spread of Covid-19, members will be concerned about how to handle guest cancellations.
This note aims to provide you with preliminary guidance on how to approach these issues.
Are we obliged to provide refunds to our customers?
Whether or not you are required to offer a full or partial refund depends on what terms and conditions you have in place with the consumer, and whether they are fair.
Your first port of call should be to establish what your own terms and conditions say as these govern the terms of the contract between you and the guest, in particular:
- When can you cancel the contract;
- When can your guests cancel the contract; and
- Whether your contract contains force majeure provisions – and if so, what do they say?
You should read the cancellation clauses carefully to check in what circumstances guests are permitted to cancel and whether a refund will be provided and if so in what circumstances. If you have made changes to your terms and conditions since the guest made their booking, you will need to look at the terms and conditions that were in place at the time the relevant booking was made. If any of the terms are unclear, or if the terms were not provided to the guest prior to the booking, you should seek specialist legal advice from a solicitor.
Until such time as:
- you are prevented from providing the accommodation by law or physical impossibility; and
- you remain able to comply with your side of the contract (in providing accommodation for the period of the booking),
you should handle any cancellation requests in accordance with your terms and conditions. This includes where a guest is unable to stay due to self-isolation / illness, or wishes to follow the government advice and avoid all but essential travel. However, you may want to waive or amend your terms as a gesture of goodwill. You should also consider the reputational risks of refusing a refund and investigate your own insurance provisions (see further below).
If your accommodation is in an area which is locked-down and people are unable to reach the accommodation, then the situation may be different and force majeure / frustration may apply. This is not currently the case in the UK.
What is a force majeure clause and will it help?
The purpose of a force majeure clause is to excuse a party from performance of an agreement following the occurrence of an event beyond the reasonable control of the party which has hindered performance or made it impossible. It will also determine whether the agreement continues, is suspended or is terminated.
Force majeure provisions are not implied into contracts and must be expressly set out. This means that the guests cannot rely on force majeure provisions unless the terms governing their contract with you permit them to do so.
You should carefully analyse any force majeure provisions in your terms and conditions and see if Covid-19 would come within the definition of a force majeure event – in most cases it would not but it depends what your terms and conditions say. You can find more information about force majeure clauses here https://www.stephens-scown.co.uk/corporate- commercial/force-majeure-in-the-uk-and-the-coronavirus/.
Depending on the wording of your force majeure clause, a party looking to rely on force majeure to excuse them from contractual obligations may need to be able to show that Covid-19 is the only reason they have been unable to perform their obligations, and that if it had not been for Covid-19 they would have been willing and able to carry out the contract.
The burden of proof is on the party wishing to rely on the force majeure clause to bring itself the terms of the clause by showing that the relevant event occurred and that it had (or was anticipated to have) the stipulated effect on the affected party’s contractual performance. The party relying on the clause will still likely need to prove that the force majeure event was not “reasonably contemplated” by the parties when making the contract, and that the event is “beyond the reasonable control” of the party seeking to rely on force majeure.
A party will not be relieved from its obligations under a contract just because the performance of the contract has become difficult or expensive to perform.
Contracts often provide for the parties to have the right to terminate after force majeure has been in place for a defined period of time.
Contracts also commonly outline notice periods and other steps that must be taken in the event that a party seeks to rely on a force majeure clause. Legal advice should be taken on the question of whether notification of the invoking of a force majeure mechanism is a contractual pre-condition or not.
It will very much depend on the wording of your terms and conditions, but you may find that other provisions such as change control, change of laws, variation and similar clauses may be helpful in establishing whether contractual rights can be changed or suspended as a result of Covid-19.
What about frustration?
Frustration of the contract may occur due to a change of circumstance after the formation of a contract which is both unexpected and beyond the control of the parties. It is a common law remedy, which means that it has evolved through the courts. It is interpreted narrowly and applies only in exceptional circumstances.
Arguably, epidemic or government travel restrictions may not have been in the mind of guests who booked holidays prior to the Covid-19 outbreak. However, as explained below, you cannot go back and change the terms on which existing bookings were made (or if you do, it may give guests the right to terminate and receive a full refund, undoing the point of the change).
Now that the Covid-19 outbreak is known, it should be within the contemplation of parties when they enter into a contract and therefore cannot frustrate the contract for future bookings. Where members have a force majeure clause in place in their existing terms, frustration is unlikely to be available as pandemics and government restrictions fall within the types of events usually contemplated when drafting a force majeure clause. You can find more information about frustration of contracts here https://www.stephens- scown.co.uk/covid19/getting-out-of-contracts-the-consequences-of-a-frustrating-event/
What if a guest wants to postpone?
If a guest wants to postpone, you should check whether your terms and conditions provide for this and act in accordance with those terms.
If the contract does not allow the guest to postpone, you should consider whether you wish to offer this in any event as a gesture of goodwill. Commercially, this may be a good option if you have not received full payment for a booking and only received a deposit as this will give you future income. Many travel suppliers are offering to hold deposits for 12 months so guest can re-book – whether or not this is permitted will depend on your terms and conditions.
If you agree for a stay to be postponed you should ensure you have clear terms governing how this will work and that guests agree to those terms (see “Should I change my terms and conditions?” below for further details).
A guest says they are entitled to a refund under the distance selling regulations as they are still within a cooling-off period – is this true?
Under the Consumer Contracts Regulations 2013, consumers have the right to cancel if their contract is not an excluded contract. Contracts for the supply of accommodation where a specific date/period for performance is specified are partially excluded (regulation 28(1)(h) Consumer Contracts Regulation 2013) so you do not need to provide a 14 day cooling off period. The remaining provisions of the Consumer Contracts Regulations 2013 will however continue to apply.
What if the booking was made via an OTA?
You should re-familiarise yourself with the terms and conditions of any third parties you work with, especially online travel agencies and membership organisations such as booking.com or AirBnB, and ensure that you are aware of your obligations under any contracts you have with them. You should have a contract review conducted where you are uncertain of your obligations. We recommend that you keep an eye open for updates from these third parties, as they may wish to make amendments to the terms of their relationship with you or impose additional obligations on you.
Do the Package Regulations apply?
If you are offering accommodation as well as other travel services you may fall within the remit of The Package Travel and Linked Travel Arrangement Regulations 2018 (The Regulations). Please see https://www.stephens-scown.co.uk/specialist-sectors/leisure-and- tourism/could-the-new-package-travel-and-linked-travel-arrangements-regulations-apply-to- your-business/ for further detail about the Regulations.
To qualify as a package holiday two or more different types of travel services need to be combined for the purpose of the same trip. Travel services include:
- carriage of passengers (flights, trains and coaches);
- motor vehicle hire; and
- other tourist services. Other tourist services are services that are not intrinsically part
of the transport or accommodation services provided but make up a significant part of the package such as admission to concerts, sports, events, excursions or event parks, guided tours, ski passes and rental of sports equipment or spa treatments.
The Regulations set out six different circumstances in which the combination of travel services will constitute a package.
When any one of carriage of passengers, accommodation or motor vehicle hire services are combined with an ‘other tourist service’, this leads to the creation of a package or a linked travel arrangement if the ‘other tourist service’ is either:
- Advertised as an essential feature of the combination of services; or
- Accounts for a significant proportion of the value of the combination of services.
Under the Regulations, package organisers are obliged to offer alternatives or refunds for holidays if they are “constrained” to make a “significant” change to or cancel a holiday. This means that if part of the package cannot be provided, for example due to closures or staff shortages, then you may be required to offer a refund. The Regulations also give travellers the right to cancellation with a full refund where there are “unavoidable and extraordinary” circumstances occurring at the destination or in the immediate vicinity which affect the performance of the package or carriage to the destination.
It is likely that many package holidays will need to be cancelled due to the “unavoidable and extraordinary circumstances” that Covid-19 presents. Whilst we await guidance from the UK government on this point, the European Commission are urging the public to accept vouchers/credit notes in-lieu of a refund on cancellation. It is hoped that this will protect the position of both travellers and businesses, however travellers should be to obtain a full refund in the future should they no longer wish to use the voucher. Under current guidance, there is no obligation on travellers to accept this alternative arrangement and, for the time being, the Regulations continue to apply in their entirety.
If you are, or think you may be, offering a package holiday, you should seek specialist legal advice to determine your obligations as this is a complex area of law.
Should I change my terms and conditions?
Changing your terms and conditions may help you to limit risks posed by new bookings, but changing your terms will not affect the existing contracts you have entered into with guests who have already booked. Updating your terms and conditions may even give guests a contractual right to cancel their contract with you, so you should undertake a careful review of your terms before changing them unilaterally. Whilst many booking terms state that they may be changed at any time, it is very unlikely that a court would uphold such a provision to the detriment of a consumer.
In the current climate it seems unlikely that many consumers will be making new bookings until the current crisis eases or government advice is downgraded so changing your terms and conditions now may not be helpful, although it could help you if guests make bookings for stays at a later date in the hope the situation changes but it is not resolved by the date of their booking.
If you decide to vary your terms and conditions as a gesture of goodwill or to secure future bookings, for example in order to allow a customer to postpone, you should seek legal advice first. It is important to check and comply with any provisions in your existing terms and conditions relating to variation. You should also make sure that the terms of any variation are clear (governing when they need to re-book by, etc.), carefully documented in writing and agreed by the guest before you agree to postpone.
It is unlikely you will be able to obtain insurance now to cover you for cancellations due to Covid-19 and most insurance providers are now specifically excluding this type of cover. We would however recommend you review any existing policies you may have and contact your insurance provider and your broker to see if you could be covered.
Covid-19 was declared a ‘notifiable disease’ by way of government legislation on the 5 March 2020 in England & Wales, but not all policies cover for losses caused by notifiable disease and you should review your existing policies carefully.
On 17 March 2020 it was announced in Parliament that the Government had persuaded insurance companies to agree to uphold insurance policies as if the government had ordered closures rather than advising against visiting pubs, clubs, theatres and other hospitality,
leisure and retail venues. So if your policy would pay out if your accommodation was forcibly closed by the government due to a pandemic, you may be able to claim on insurance even though it has not officially been closed. However many insurance policies do not provide cover in the event of an enforced government closure and you should review your existing policies carefully and seek advice if the position is unclear.
Further Changes on the Horizon
The Government’s advice is changing daily, and you should keep an eye out for updated guidance which may change the content of this note.
The Association of British Travel Agents (ABTA) have recently announced that they are calling on the government to implement temporary emergency legislation to:
- Introduce an emergency government fund to assist with refunds where tour operators are unable to obtain refunds from their suppliers;
- Remove the obligation to make refunds within 14 days; and
- To allow credits as an alternative to cash refund.
Whilst ABTA represents the large tour operators, future emergency legislation could have a wider remit and may cover smaller accommodation providers and we would recommend you follow government announcements closely for further support that may be made available to the tourism industry and small businesses.
© 2020 Stephens Scown LLP
The information in this Fact Sheet is intended to be general information only. English law is subject to change and the government advice related to corona virus is constantly changing, so whilst Stephens Scown LLP seeks to ensure the information contained in this Fact Sheet is up to date and accurate as at 20th March 2020, the law can change quickly and no guarantee is made as to its ongoing accuracy. This document should not be viewed as an alternative to professional advice and Stephens Scown LLP does not accept liability for any action taken or not taken as a result of this information. This is a complex area of law and we would advise those who may be affected to seek specialist legal advice to determine the best course of action for their specific business requirements. Please contact Stephens Scown LLP by email at email@example.com, or call us on + 44 (0)1392 210700 for more information.
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