< Previoushoteliermiddleeast.com April 2020 20 The hospitality sector has been deeply shaken by the 2019 novel coronavirus (COVID-19) which continues to spread across the globe. This has directly affected hotel occupancy rates and revenues that the hotels are able to achieve per available room (RevPAR), as countries around the world are imposing travel bans, quarantining citizens and isolating the infected in an attempt to stop the spread of the new virus. With operators closing entire floors of hotel rooms, restaurants, as well as renegotiating contract terms with suppliers of goods and placing employees on unpaid leave, the reality of the virus is hitting home. THE LEGAL AGREEMENT AND FORCE MAJEURE (FM) The hotel management agreement (HMA) (which is the most common form of agreement governing the relationship between the owner and the operator) addresses the concept of FM in a number of places and gives rise to a number of consequences. The concept of FM derives from the French civil law system and is frequently incorporated into COVID-19: The legal implications for hoteliers commercial contracts that are governed by common law systems. Operators will argue that the definition of a FM event in a HMA should be wide enough to cover global epidemics, pandemics and travel disruption. Owners will often argue that these events should be limited to the country within which the hotel is located. UNDER WHICH LAWS WILL THE HMA BE CONSIDERED? It is important to consider the governing law clause in the HMA as this will have an impact on whether COVID-19 can be classified as a FM event. HOT TOPIC 20 Baker McKenzie senior associate lawyer. Keri Watkins and Baker McKenzie, partner Bilal Ambikapathy take an in-depth look at where hoteliers stand from a legal perspective as a result of the pandemic21 April 2020 hoteliermiddleeast.com Hot Topic ENGLISH LAW About half the HMAs in the Gulf region are governed by English common law. Under common law, what constitutes a FM event and the precise objective test depends on the speci c wording of the clause within the agreement. If the agreement provides that a FM event must "prevent" performance, the operator must generally demonstrate that its performance has become legally or physically impossible and not merely more dif cult or more expensive. By contrast, if the provision refers to the event "hindering or delaying" performance, then the threshold will generally be lower and FM may be satis ed if performance remains possible but has become substantially more onerous. English courts tend to take a dim view of claims that market circumstances affecting the pro tability of an agreement may be a FM event. UAE LAW UAE law recognises and differentiates between partial and total impossibility of performing a contractual obligation in terms of a FM event. In such event, the impossible part of the obligation shall cease to exist. The affected party still has the option to terminate the contract and inform the other party of such termination. The same principle applies to temporary impossibility. SAUDI ARABIAN LAW The position in Saudi Arabia, under shariah law, is that FM can generally be claimed irrespective of whether the contract explicitly provides for it. However, the threshold is high and the burden of proof rests on the claimant. The court would consider several factors in making its determination. An event that lasts or is likely to last for a few months may not be deemed sufficient by the court to excuse a party of its contractual obligations. The court may also consider other factors, such as the possibility that the claimant could have tried to negotiate different contractual terms. FACTORS TO CONSIDER During these challenging times, it is important for hotel owners and operators to review their agreements with particular regard to the following: Performance Tests — the performance test will include an obligation on the operator to ensure that (a) the RevPAR meets the pre-agreed percentage of the average RevPAR of a group of competitive hotels within a certain distance of the hotel (often known as the competitive set); and (b) the operating profit of the hotel is no less than a pre-agreed percentage of the forecasted gross operating profit set out in the budget. However, a 'carve out' is typically included by the operator, so that they are not required to achieve the requirements of the performance test in the event of FM. Enduring Periods of FM — some HMAs afford both parties the right to terminate if an event of FM persists for an extended period of time. This right of termination may become important where closure of the hotel is warranted and the timeframe for its reopening is unclear or unlikely. Working Capital — the impact of COVID-19 on the hotel industry has highlighted the importance of working capital reserves. While the trend has been to reduce these reserves to the minimum amount possible, the current circumstances prove the need for suf cient working capital reserves to be maintained for periods long enough to either (i) allow a FM event to subside and business to resume or (ii) allow the hotel owner suf cient time to make a claim under its business interruption policy and receive the proceeds of insurance. Insurance — the owner's property all risk insurance policy, and in particular, the business interruption component of that policy, need to be carefully considered. The policy wording needs to respond in circumstances that go beyond physical damage to the hotel, so as to capture pandemic type circumstances where the hotel remains physically intact but the hotel business collapses for an extended period of time. Employee Relations — hotel employees are at the heart of the guest experience and are the cornerstone of the hospitality industry. The mass layoff, furlough or leave without pay arrangements that are being implemented across the industry are placing this core element of the hotel at risk. Better strategies need to be adopted to address the issue of staff retention in circumstances like the present, where business activity suddenly comes to an end. Debt Financing — while central banks are looking to provide relief to affected industries and business owners, hotel owners need to begin talks with their lenders to agree the rescheduling of debt and alternative security packages, as hotel valuations decline triggering loan to value ratio recalculations. Complex and disruptive outcomes can arise if the lenders are not on board and actively engaged in the process. 21 Bilal AmbikapathyKeri Watkinshoteliermiddleeast.com April 2020 22 Hot Topic In the midst of the coronavirus pandemic members senior management teams at leading hotel brands in the region have been effective in communicating detailed standard operating procedures (SOPs) to its guests and the media when it comes to efforts on hygiene and guest safety. Though many properties have chosen to temporarily close due to low occupancy caused by the COVD- 19 pandemic, the hotels that are still operational are having to adapt to a new landscape. Social distancing, reduced staffing and increased health and safety protocols are being implemented by several hotel groups. Coping With COVID-19 Most representatives have opted not comment on the matter beyond a general statement however, the sharing of knowledge and experiences is crucial if the industry is to weather this storm. Speaking about the new measures being put in place as a result of the coronavirus, Samujana, Koh Samui director of sales & marketing Karen Slocombe said: “Naturally our villas lend themselves well to social distancing and our team are on hand to help with anything your guests need during their stay with us including fetching groceries and arranging private trips and transport. We can create unique and memorable dining experiences in the villas including Claudia de Brito speaks to hoteliers in the region and beyond about how properties are adapting to the pandemic’s effect on hospitality Naim Maddad23 April 2020 hoteliermiddleeast.com Hot Topic large family style banquets and we have menus to suit many occasions including a backyard BBQ or Gourmet Feast. The point is to avoid crowds if you can help it, even though there are no cases recorded in Koh Samui. We can organise everything privately from a yoga or Muay Thai lesson or an Island Tour in your own private transportation and these can we arranged off peak so you can avoid the masses.” Still, Slocombe was keen to point out that safety remains the number one priority for the property: “We have been vigilantly monitoring the COVID-19 situation and have precautions in place to ensure a healthy stay for our guests. We are closely monitoring the World Health Organization (WHO) and local health agencies for the latest developments related to COVID-19 and following all guidance on the appropriate health and safety measures. Currently this includes everything from handwashing hygiene and using specific cleaning products to guest room and common area cleaning procedures.” The Residence Zanzibar director of sales & marketing Syed Aftab echoed the sentiment saying: “Precautionary procedures have been stepped up with increased frequency of cleaning and sanitising of the hotel’s facilities and public areas. The practices of good personal hygiene have also been strictly reinforced to all staff. In case of symptoms suggestive of respiratory illness, both guests and staff have been asked to seek medical attention immediately. We remain vigilant and are in constant contact with both our guests and staff at all times for updates and to continually remind them on appropriate measures to adopt in protecting their health and the well-being of others during this time.” While The Residence Zanzibar is open for business, lower occupancy has had an effect operations. Aftab explains: “Based on the level of cancellations we have received, which are huge, most of our staff are will be on annual leave starting from May 2020. The staff that remains to cater to our guests will have the great opportunity of cross exposure which will help them to learn and grow in their career in good times.” Slocombe said that her property hadn’t had to make any members of staff redundant and that periods of low occupancy were being used to continue ongoing training in preparation the industry’s recovery. Both Slocombe and Aftab said that their respective properties hadn’t been notified of any government initiatives in place to ease the financial burden of COVID-19. Aftab explained: “ There hasn’t been any support from government so far, however ZATI (Zanzibar Association of Tourism Industry) members had their meeting and have submitted the proposal on suspension of all payments for SDL, Freeze on TRA Corporate tax and postponement of ZSSF contributions to Zanzibar government and are waiting for their feedback.” When asked about the government initiatives being rolled out in light of the crisis, Gates Hospitality chief executive and founder Naim Maadad said: “The current situation is being faced by the global community and until the world opens up again, there is not much that can be done. In fairness the government authorities have announced a couple of relief measures to the industry in the form of tax and fees being halved. This is the time and rightly so – where the focus is the management of crisis and not nding the solution to problems being faced by the industry. "The right time to accelerate plans and support the businesses would be after medical treatment has been found and travel opens up. Only then can the economy be revived and the industry can start to crawl back slowly but steadily into normalcy.” In the meantime, properties are doing what they can to support those affected by the pandemic. He explained: “As this is a global crisis and we are still ghting the unknown without having a clarity on the medical solution, the hotel industry as a clear CSR initiative is freeing up their room inventory to authorities to be used as isolation rooms for those who have tested positive for the COVID-19. As long as global travel is closed, hotel inventory will remain empty and very little can be done during this period.” Maadad, who has almost 30 years of global hospitality experience, concluded by saying: “Once the medical research fraternity clears the route with the treatment medication available globally, the spread stopped and the virus fully eradicated, then a lot of effort would be needed by all the stakeholders to come together and save the industry. It would indeed be a humongous task but would need to be done to save the various businesses on which we all depend.” Syed AftabKaren Slocombexxxxxxxx MARKET UPDATE Mountain climbing in Ras Al KhaimahSustainable Growth According to STR Global, Ras Al Khaimah's performance in both occupancy and ADR has remained stable over the past three years. The gures show that the emirate is develping into an attractive destination rather than just a cluster of resorts By Claudia de Brito While its neighbouring emirates have gone down the route of building the types of luxury properties that have become a trademark of this region, Ras Al Khaimah is standing out by going off the beaten path. The diversity of its attractions, namely 7,000 years of heritage and culture, 64km of pristine beaches and the highest mountains in the country, appeal to a wide range of both international and domestic travellers. STRONG FOUNDATION Over the past year, Ras Al Khaimah received a record number of 1.12 million visitors, greaty exceeding forecasted numbers. Speaking about the emirate’s hospitality sector, Citymax Hotel Ras Al Khaimah general manager Ahmad Taher said: “Ras Al Khaimah’s hospitality market continues to show great signs of strength and growth, offering great potential to investors due to the signi cant rise in the number of international and domestic visitors, and commendable growth in hotel performance across many metrics over the last few years.” A lot of effort has gone into promoting the emirate as a destination. Ras Al Khaimah Tourism Development Authority (RAKTDA) CEO Raki Phillips explained: “Last year’s market performance was very positive. Arrivals to the emirate were up almost 4% to 1.12 million in comparison to 2018. We conducted over 122 Fam Trips, participated in 20 exhibitions, completed 34 roadshows across 16 countries and held 63 workshops in 12 countries to cement our market presence further.” Though Colliers Senior Manager Hotels MENA Region James Wrenn agrees that the emirate has performed well, external factors will have an impact on this year’s numbers: “Ras Al Khaimah reported a steady increase in growth reaching 74.1% occupancy and an ADR of US $154. The emirate started off strong at the beginning of the year with an increase of 4.5% in occupancy YTD compared to the same period in 2019. However, with the COVID-19, there will be an impact on the market in 2020, but we are hopeful of Market Update 25 April 2020 hoteliermiddleeast.comJebel Jais Flight The emirate is a must visit destination for adventure enthusiasts seeing demand pick up in the latter half of the year.” Taher added that, though the overall city ADR dropped by 12% last year compared to 2018, Citymax Hotel Ras Al Khaimah witnessed great success in terms of occupancy and ADR with focus on corporate and retail business. The leisure sector is also performing well. The emirate has been reporting a steady increase in growth especially among the beach resorts. Wrenn explained: “The emirate’s beach resorts achieved a high ADR due to the large concentration of internationally branded ve-star supply.” Phillips shed some light on Ras Al Khaimah’s source markets saying: These impressive gures were driven by growth across our target markets, with visitors from Russia, India and Kazakhstan up by 13%, 10.5% and 15% respectively in comparison to 2018 gures. The upward visitor number trend was also re ected amongst hoteliermiddleeast.com April 2020 26other markets – footfall from Poland, for example, was up by 14%.” BUSINESS AND LEISURE Speaking about existing and emerging trends, Wrenn said: “We have seen a big focus on EWAA (Eco-tourism, Wellness, Adventure and Agritourism) tourism in Ras Al Khaimah as well as luxury desert camps. The opening of the world’s longest zip line in the world in 2018, put the emirate on the map as a must visit destination for adventure enthusiasts. Taher echoed the sentiment saying: “One of the latest trends we’ve seen emerging in the emirate of Ras Al Khaimah is the concept of adventure attractions, which appeals to a large segment of people. Visitors to RAK are thrilled to experience the longest zip line in the world, desert adventures as well as the great beaches. Though natural attractions are a big draw for visitors, for Phillips it goes hand- in-hand with the trend of sustainable tourism: “We re ect this ideal throughout our attractions, especially in the case of the adventure offerings at the Jais Adventure Peak. The Jais Sky Maze, Jais Sky Tour and Jebel Jais Flight are all positioned in a non- intrusive manner on the façade of the peak, allowing for guests to experience incredible thrills without disturbing the natural landscape. “Another trend is the rise in MICE events, which we are fully equipped to meet through the dedicated provisions at Al Hamra Exhibition and Conference Centre. Ras Al Khaimah is an up and coming MICE hub in the region, proven time and time again through the hosting of major events such as the World Travel & Tourism Council Middle East & North Africa Leaders Forum and Arabian Hotel Investment Conference as well as the Belgian Travel Summit, all in 2019. We are continuing this trend into 2020 and will be hosting more internationally renowned conferences in the Emirate whereby guests can enhance their experience through the diverse offerings of Ras Al Khaimah.” BRAND DEBUTS Ras Al Khaimah is currently in a strong development stage with more than 2,000 keys across luxury and mid- market sectors to be added in 2020. Radisson Blu Hotel Dubai Waterfront, Radisson Blu Hotel Dubai Canal View and Radisson Resort Ras Al Khaimah Al Marjan Island cluster general manager David Allan revealed: “We’re opening the rst Radisson Resort in the Middle East on Marjan Island in H2 2020 and are rightly very excited about it. The hotel will comprise 400 rooms with private beach access, eight F&B outlets, kid’s club, ballroom and meeting rooms. We are committed to great service and hospitality and Citymax RAK exterior 27 April 2020 hoteliermiddleeast.com Market UpdateDavid Allen The pool at Holiday Inn Cairo Maadi are con dent that our hotel will be a welcome addition to the emirate.” Looking further ahead, Phillips said that the vision for Ras Al Khaimah’s hospitality sector is to develop over 12,000 rooms by 2022 to support the Emirate’s wider Destination Strategy. He explained: “We are working towards this through various projects with global brands such as Marriott, Mövenpick, Sheraton, Anantara and Intercontinental amongst others. GROWTH AND RECOVERY RAKTDA has announced a plan for the coming year with an overall investment of over AED50 million to continue promoting the emirate worldwide, attending major exhibitions and roadshows notably in new source markets. Speaking about what the year has in store for the emirate’s hospitality sector, Taher said: “In Ras Al Khaimah, we are looking very positively to 2020 as a year of opportunities. We working closely with RAKTDA to promote the destination to new markets while supporting the vision of H.E. Engr. Sheikh Salem bin Sultan bin Saqr Al Qasimi, the Chairman of the Department of Civil Aviation of Ras Al Khaimah for the hospitality industry by aiming to drive more charter and regular ights to RAK Airport this year." Aligned with the Emirate’s ongoing destination strategy, Phillips predicts a diversi cation in Ras Al Khaimah’s tourism offering to attract a wider segment of tourists and higher yield visitors looking for authentic and unique experiences. He explained RAKTDA’s vision: “Our aim is to create a sustainable destination that delivers extraordinary experiences across our offering — beaches, natural beauty; cultural heritage, excellence in hospitality and unrivalled adventure attractions, in order to attract close to 1.5 million visitors by 2021, and 3 million visitors by 2025. The outlook for the hospitality sector remains positive and we look forward to continuing this upward trajectory in 2020.” Ahmad Taher Citymax RAK Interior It must be noted that the COVID-19 pandemic has caused an acute uncertainty in the global hospitality sector and it will affect the emirate's occupancy rates in 2020. Still, Wrenn and his colleagues at Colliers are hopeful about a market recovery in the second half of the year, once the virus is contained and demand returns. Raki Phillips Market Update hoteliermiddleeast.com April 2020 28Market Update 29 April 2020 hoteliermiddleeast.comNext >