SoftBank-backed Oyo has invoked the force majeure clause in its agreements with hotel owners given the impact of the COVID-19 pandemic on the industry, the Economic Times reported. This allows Oyo to effectively suspend minimum guarantee payments to the hotels. Under the minimum guarantee model, hotel owners have to be paid a minimum amount regardless of the volume of business generated. But many angry hotel owners said the clause was never included in the original agreements, as per the ET report. We have reached out to Oyo for comment, copy of the letter and the new agreements.
In the letter invoking force marjeure, Oyo has also reportedly proposed fresh revenue-sharing models, which would replace existing agreements. Under the new agreement, Oyo will deduct 10% of net revenue generated from a hotel, besides sales and marketing costs, channel charges and customer acquisition expenses, per the ET report. Federation of Hotel & Restaurant Associations of India (FHRAI) said it had received complaints from hotel owners with regard to the letter.
The hotel and tourism industry has become paralysed from the impact of the COVID-19 pandemic. On April 2, Oyo said that its founder Ritesh Agarwal would forego his annual salary, and company leaders would take pay cuts for this financial year.
In its letter to hotel owners, Oyo also reportedly said that it reserves the right to completely terminate existing arrangements if the situation worsens. It added that it may not be able to make payments under the new agreement in case hotels are being used for essential services under the government or healthcare authorities orders.
This is significant because on March 30, the company had partnered with Apollo Hospitals to offer sanitised beds and facilities around the hospitals in six cities: Mumbai, Delhi, Hyderabad, Chennai, Bengaluru and Kolkata. The hotels will be set up for self-quarantine and isolation for suspected COVID-19 patients. Other hotels are being identified to provide shelter for stranded local and foreign tourists. It is not clear if this partnership will also be affected.