OYO, which has thousands of hotels under its umbrella and a revenue sharing agreement with them, has written to them saying that it will not be able to pay them the minimum guaranteed revenue. This comes as all hotels have shut shop amid the pandemic.
The benchmark revenue is calculated for each hotel based on the previous rates of room occupancy and agreement with OYO envisages the latter making a fixed payment every month based on the benchmark fixed for the property in the agreement. Now, with flights and trains suspended, nobody is travelling anywhere and there‚Äôs no way hotels can expect to have guests.
OYO has pointed out to the hotels that the impact of the COVID-19 virus would be so severe that the performance of the hotels is not likely to witness any improvement for some more time.
‚ÄúThis abrupt, extra-ordinary and unprecedented drop in your hotel‚Äôs revenue as a result of the Covid-19 can hardly be considered to be in the ordinary course of business. OYO‚Äôs performance and obligation in relation to the benchmark revenue under the agreement has become extremely onerous and commercially impracticable,‚ÄĚ the PTI report quotes OYO as telling its partner hotels.
With that, OYO says it is invoking the Force Majeure clause with effect from March 12, 2020 and is virtually suspending the operation of the agreement itself. It says there will be a fresh revenue sharing formula in place where the hotels will be entitled to 10% of the net revenue.
OYO has concluded its communication with the assurance to the hotels that is will review the situation once the lockdown is lifted and things are back to normal before switching back to the agreements.
The Federation of Hotel & Restaurant Associations of India has reacted by saying this is a hit below the belt by OYO. There have been complaints earlier too that the hospitality major has been defaulting on releasing payments to the partner hotels as agreed upon.