Avoid bankruptcy in the hotel sector

Introduction

Hotels are businesses seriously affected by the Covid-19 pandemic, just like other establishments in the tourism sector. The lack of mobility caused by the social alert in general, and by the restrictions imposed by the administrations in particular, caused a sudden decrease in social displacements and in the demand for hotel beds.

The decline in demand for hotel services and, consequently, in revenue from reservations and guest accommodation has placed many entities in the sector in a situation of lack of liquidity and insolvency if not actual, imminent. However, there is a wide range of options to reduce the impact that this health crisis has had on the sector, and we will see some options below.

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Rebus sic stantibus clause

The rebus sic stantibus clause is a tool allowed by our jurisprudence to avoid unbalances that arise in the execution of the conditions agreed in a contract for reasons that do not could be foreseen at the time of contracting. It is not a clause in itself, despite its name, but rather the application of a doctrine that under that denomination allows the agreement to be altered to maintain the economic balance of the contract.

The rebus sic stantibus seeks to restore the balance of contractual benefits, this means that one party does not see itself more benefited than the other by maintaining the conditions of a contract that was agreed before the unforeseeable and unavoidable event.

Under certain circumstances and studying the specific case, this doctrine can be applied to current contracts, alleging the pandemic situation we are experiencing as an unforeseeable event, and achieving a modification of existing contractual obligations. This legal mechanism can really be of great help to prevent businesses, such as hotels and other tourist accommodation establishments, from having to continue fulfilling their contractual obligations when their billing has decreased as a result of these circumstantial circumstances that are beyond their control. control and could not be predicted.

In this regard, there have already been certain Jurisprudential pronouncements in the past, such as the Supreme Court Judgment of April 20, 1994. However, we offer more information on the Rebus in our article Formulation of the Rebus Clause in the execution of leases.

Compensation of insurers for closing the business during the state of alarm

Continuing with the options that exist to alleviate the economic crisis in the hotel sector, there is one in particular that many companies are turning to lately and which consists of passing on the damages derived from the cessation of activity to the insurance company when there is an insurance policy that covers risks of the activity.

There are many activity insurance policies that allow you to claim compensation for temporary stoppage of our activity. There being a forced closure of the activity in the spring of 2020 as a result of the sanitary restrictions, and perimeter closures in the following months, it is possible to study a possible compensation claim.

There are already jurisprudential precedents in which the courts are granting these compensations, such as Judgment no. 59/2021, of February 3, of the Provincial Court of Girona (Section 1), Judgment no. 254/2021, of June 16, of the Provincial Court of Girona (Section 2), or the recent Judgment of the Court of First Instance No. 14 of Granada, of July 21, 2021, with number 166/2021. However, we must abide by the content of the insurance policy and the particular and general conditions contracted, which requires a prior study.

More information: “Compensation for the closure of the business during the State of Alarm”

Lease-Back

The lease-back, or retroleasing, consists of the sale to an investor of a property and the simultaneous signing of a medium or long lease term on it, generally between 10 and 20 years. In this way, the seller does not have to vacate the property that he has sold, he still has the right to continue in the space through a rental contract and in turn can obtain the immediate liquidity that results from that sale.

The lease-back is a good way to obtain financing so that the company can reduce its insolvency problems without having to give up its activity professional or productive It is usually used for real estate investments (acquisition of industrial buildings or offices with a revaluation expected), although this formula can also be used with personal property.

This type of procedure is characterized by being flexible since the interested parties can agree on the clauses that agree according to the needs. In addition, important aspects such as guarantees, resolution as a result of non-payment of rent or maintenance and conservation of the property are taken into account, which is usually of great importance in the negotiation of these operations.

We can conclude from all of the above that it is an interesting option for the hotel business, considering the high volume of fixed assets that often swell the assets of these companies.

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Joint Venture in the hospitality sector

This figure of business collaboration is applied when two or more companies make the decision to join forces under a common project.

This is a business model based on a strategic alliance, where several companies with a series of common objectives collaborate to achieve them. To achieve their objective, the companies that collaborate with each other combine their resources and both parties assume the same responsibilities in relation to this collaboration.

A characteristic of the Joint Venture is that the union that occurs between one or several companies is temporary, and, although they act a priori as if were a single entity, and carry out their activity in accordance with common standards, each company maintains its legal independence.

Thus, this business model allows each of the partners to continue operating independently. However, it must be taken into account that in this union between companies, the profits obtained or the losses must be distributed among all the participants, and this will be reflected in the income statement of both partners, depending on the legal form with which the collaboration has been structured, being the legal figure that best adapts to this modality the Temporary Company Union or UTE.

All the proposed alternatives can help us to solve economic problems that our company in the hotel sector may be going through, being essential for the viability of any of them to act as soon as possible in order to avoid a situation of definitive insolvency that leads the entity to a situation of bankruptcy within which, however, different measures may be adopted that also seek the viability of the activity.

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