Government Agencies Work to Flatten the Curve by Taking Over Hotels
Issues That Hotel Owners and Brands Should Consider Before Handing Over the Keys
- While hotels struggle with low occupancy rates and municipalities deal with overcrowding at hospitals with an inverse capacity issue, government agencies are turning to hotels to use as hospital facilities or quarantine space, as well as for temporary housing for first responders, hospital workers and the homeless.
- While agencies have the authority to commandeer hotel facilities through a condemnation order, such an order would provide an agency only with the physical building. The alternative route for government agencies is to buy out some or all of a hotel on a contractual basis.
- Before handing the keys of your hotel over to the government, however, hoteliers should consider a number of important issues.
From the national travel ban to the shelter-in-place orders issued by many states and municipalities, the COVID-19 quarantine has had a major impact on the travel industry. While hotels struggle with low occupancy rates and municipalities deal with concerns regarding overcrowding at hospitals with an inverse capacity issue, government agencies have called hoteliers to action because of the looming prospect of not having enough hospital beds and the increasing need to shelter other populations, including first responders, hospital workers and the homeless.
Healthcare infrastructure has become overwhelmed despite widespread efforts to slow down the virus through social distancing, enforced through "shelter-in-place" and "safer-at-home" orders. Government agencies are turning to hotels to use as hospital facilities and temporary housing. While agencies have the authority to commandeer the hotel facilities through a condemnation order, such an order would provide an agency only with the physical building. The alternative route for government agencies is to buy out some or all of a hotel on a contractual basis. For example, the City and County of San Francisco issued a request for proposal (RFP) on March 19, 2020, calling for a minimum of 4,250 hotel rooms to be used as "Isolation Rooms" for its homeless population and those exposed to the coronavirus that are unable to self-quarantine. The RFP also sought "Worker Rooms" for first responders who are exposed to the virus daily on the front lines.
Before handing the keys of your hotel over to the government, hoteliers should consider the following:
- Intended Use of the Facilities. All intended use of the hotel by a government agency should be clearly understood prior to entering into an occupancy contract. A government agency's desire to make immediate, major capital expenditure-type alterations to the hotel could be a nonstarter for a hotel. Also, the weight of certain medical equipment may not be supported by a hotel structure. The occupancy contract should provide that the hotel is being provided for use "as-is," and that no alterations are to be made to the hotel by the government agency. If the guestroom furniture, fixtures and equipment (FF&E) is to be replaced with hospital equipment, the cost of moving and storing the FF&E should be priced into the occupancy contract.
- Operations and Services. The majority of the guests staying at the hotel will have come into contact or be ill with the coronavirus. As such, hotels should limit hotel operations to minimum services needed to service the government agency's alternate use, and precautions put into place to limit exposure of the government occupants to hotel employees. Operations that need to be conducted by hotel employees, such as activating hotel room keys, should be in isolated areas. Food and beverage service and housekeeping should also have certain protocols to lower or eliminate the risk of exposure. For any hotel employees working at a hotel where exposure could occur, the agency should be required to provide sufficient personal protective equipment and train hotel employees in its use. Security for the hotel should be provided by the government agency. In addition, special procedures can be created for the disposal of trash and hazardous waste as well as for the laundering of sheets and towels, which may include outsourcing to a third-party service provider. All such unique services may come at an additional cost to the hotel and should be priced into the occupancy contract with a government agency.
- Amenities and Facilities. The occupancy contract should clearly state which amenities and facilities are available for use by the government agency and its occupants during the term. The hotel team should consider closing and locking off fitness facilities, swimming pool areas and locker rooms, ice and vending machines, and banquet and meeting facilities to limit the areas of potential exposure as well as to help limit wear and tear on the hotel asset. All back-of-house administrative offices should remain locked at all times and not be accessible by any agency representatives. If an agency needs office-type facilities at the hotel, alternate space should be identified.
- Departure Requirements. Two sets of requirements for departures should be considered in the occupancy contract: 1) those for the periodic departure of individual occupants, and 2) those for when the government agency departs the hotel and the hotel is turned back over to the hotelier. In both cases, detailed procedures should be developed for the cleaning and sanitizing of hotel facilities as well as the replacement of operating supplies, such as sheets and towels, and FF&E as needed. Disposure of medical and other hazardous waste should be the sole responsibility of the agency. All cleaning, sanitization and removal of hazardous waste must be accordance to the highest standards established by state and federal public health authorities, including Centers for Disease Control and Prevention (CDC) guidelines. The occupancy contract should require that the government agency be responsible for all repairs and maintenance needed to return the hotel facilities to its same condition as the date of commencement of the occupancy contract, and that the term of the occupancy contract should continue until such repairs are completed.
- Brand Considerations. Hoteliers should consider what steps to take to temporarily dissociate the brand from the hotel during the term of the occupancy contract and until the hotel is returned to brand standards. Brand signage may need to be covered and branded operating supplies should be removed from the guestrooms. In addition, temporary removal of the property from the brand reservation system would be necessary.
- Government as a Party. As a party to the agreement, the government may have additional powers such as waiving eviction laws or taxes during the term. There also may be additional authorizations required to make the agreement binding and in full force and effect. Sovereign immunity issues for the applicable jurisdiction should be understood and considered, particularly in the context of the agency indemnifying the hotelier for the agency's use of the hotel during the occupancy contract term or the agency providing waivers. In addition, hoteliers should understand and consider the risk related to appropriations when identifying the rate for such agency use. Certain jurisdictions may also require policy-type provisions related to business practices in all government contracts, but due to the immediate need for hotel rooms, agencies may be willing to waive some policy requirements.
- Other Contract Terms. Further consideration should also be given to other standard contract terms, such as casualty and insurance, in this unique contractual arrangement.
Hoteliers have the opportunity to repurpose their facilities to assist in flattening the curve, as well as to keep revenue flowing and certain hotel staff employed, but such opportunity is not without risk. While many government agencies' needs are immediate, a hotelier should be careful before entering into a form agreement provided by a government agency. Instead, the hotelier should consider the impact of a government agency's alternate use on its hotel asset and long-term operations and consider addressing its concerns with the government agency in negotiations for the occupancy contract.
Holland & Knight has established a COVID-19 Response Team for Hotel Operations and Management to help address business, regulatory and legal issues companies may face related to COVID-19, including government agency occupancy contracts. Please contact the authors of this alert or visit the dedicated page above for further information.
DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the author of this alert for timely advice.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.