The COVID-19 pandemic and its travel restrictions are ravaging the hospitality industry worldwide in ways that Marriott International Inc. CEO Arne Sorenson described as worse for business than the aftermath of 9/11 or the financial crisis of 2008 and 2009.

Real estate partner Tom Gryboski of Morris, Manning & Martin, in Atlanta, who is chair of the firm's hospitality practice group, said his clients, who include large institutional investors, are grappling with cascading cancellations and the need for furloughs and layoff due to the novel coronavirus pandemic and mandatory closures.

Of 9,000 job cut announcements studied by Challenger Gray & Christmas, the outplacement firm, more than nine out of 10 were at restaurants and other leisure and entertainment businesses, based on data from the Bureau of Labor Statistics data and various state economic departments, the firm said last week. The firm estimated that 14 million jobs in leisure and hospitality were threatened by the mandatory closures underway in the United States.

"This is uncharted territory for the hospitality industry. Everything is on the table, talking to lenders and franchisers and talking to operators about how to best work through these challenges," Gryboski said.

Marriott, for instance, the world's largest hotel company, announced that it would furlough about two-thirds of its 4,000 employees at its Bethesda, Maryland, headquarters and two-thirds of its staff abroad, as first reported online in the Wall Street Journal this week. A request for an interview with a Marriott in-house counsel did not receive a reply.

A much smaller hotel chain, Graduate Hotels, which maintains 22 properties near college campuses, announced it was closing all of its hotels indefinitely effective March 20 on account of the COVID-19 pandemic. A spokeswoman for the company also declined a request for an interview with the general counsel of that chain.

The fast-moving crisis calls for quick action by inside and outside counsel, lawyers who specialize in this industry said.

"It's important to protect your people and your revenue," said Michael Whitton, a real estate partner in San Diego and member of the national executive committee at Troutman Sanders, who advises on transactions involving golf courses and country clubs, marinas, hotels and resorts. "And protect your brand too, because the steps you take will have lasting effects." Troutman Sanders announced it has postponed its planned merger with Pepper Hamilton until July 1.

Here are six priorities for counsel at hospitality companies in the COVID-19 pandemic:

1.Protecting the health and safety of employees and customers. The foremost priority is to make sure that employees who are continuing to work in properties are observing the state and local emergency rules as well as Occupational Safety and Health Administration requirements for the welfare of employees in the workplace, the lawyers said. Also, communicating with critical suppliers over sanitizing and cleaning materials as the supply chain is disrupted, and making sure properties have those products on site.

Customer safety is also paramount. Whitton said at golf resort properties that are still open, managers are rearranging facilities and organizing activities to encourage social distancing—such as one customer per golf cart—and removing some equipment to reduce the number of "high touch" surfaces. Properties are also closing down swimming pools and in-dining food service. "It is interesting how on a dime we have changed how we operate," he said.

David Stone Phelps, a partner in Akin Gump Strauss Hauer & Feld's Los Angeles office and national real estate and hospitality practice who represents private equity and institutional investors, said counsel should also prepare for possible litigation, from "third-party claims based on guests or employees coming down with COVID-19 and saying the company didn't comply with CDC [Centers for Disease Control and Prevention] and OSHA requirements." 

2. Hashing out employment issues. Gryboski said, "I have been getting a lot of calls on employment issues related to layoffs and furloughs and state and federal notice requirements under the WARN Act." He said the federal notification requirements are straightforward, but the state ones vary. Though many hospitality companies are laying off employees, their lawyers are also inquiring into government aid programs and stimulus bills to see how they can help keep people on payroll. Paid sick leave, quarantine leave and benefits requirements are other concerns absorbing lawyers' time, other lawyers said.

Whitton said, "Let's look at the different programs that are out there to keep employees tied to us so they can come back, and treat them well so we can reboot quickly after this is over and get back to the same levels of service." He said the fiscal crisis more than a decade ago taught many companies the difficulty of replacing trained talent once it is lost.

3. Communicating with lenders. Some hospitality companies are asking for the suspension of payments, or the use of existing reserves, such as funds for refurbishment of properties, to pay instead for operations, or asking for the removal of interest rate floors because borrowing costs are historically low. Whitton asked, "Where do we have some relief valves to stabilize organizations and cash flow? Do we have parties at the table that are willing to assist in getting us through this time?" Explore different financing vehicles and analyze the stimulus packages. He said all the company stakeholders have to be involved in the decision-making. "It has to be a partnership. All the stakeholders have to be at the table so everyone can be treated fairly," he said.

4. Reviewing hotel management agreements and franchise agreements for possible defaults. Many hotel management agreements have performance termination clauses that say if you don't meet certain performance thresholds you can be terminated. Most agreements don't mention pandemic under force majeure. Companies are communicating with franchisers and asking for grace periods on product improvement plans and getting longer time to upgrade facilities, and also asking for assistance with lower franchise fees.

5. Reviewing contracts and insurance policies. Especially review force majeure provisions, and insurance policies' property damages coverage, and whether the novel coronavirus is contemplated for business interruption insurance, lawyers said. Also, cancellation policies and procedures.

6. Considering alternative uses for properties, such as turning hotels and resorts into hospitals or quarantine areas, and can that be done under the terms of your loan, or are there zoning and land use restrictions? Chicago, for instance, negotiated with local hotel operators to rent up to 2,000 hotel rooms by the end of this week to isolate residents who are exposed to COVID-19 but whose conditions are not severe enough for hospitalization, according to news reports. Los Angeles officials are reported to be considering measures to convert hotel rooms and dorms into hospital beds.

Phelps said "one of the newest issues that we will see more and more of, and we are currently helping the GC of a large hotel company comes to grips with" is possible conversion of some properties into acute care facilities. He said that in that instance the hotel company is considering doing this voluntarily, but it is possible that governments might co-opt facilities. The same client who was thinking of volunteering to turn over properties for health care is also being approached by developers who want to bring workers to the state, where there is no shelter-in-place order, he said.

Conversions raise a host of legal issues, including who is obligated to convert the rooms and at whose expense, who would operate the facilities and carry the insurance, and who would pay for any rebuild back to brand standard after the epidemic subsides.

"A huge concern is will there be any compensation for loss of value because of any lingering negative effects or stigma of having been converted into a coronavirus hospital or acute care centre?" Phelps said. "That is what we are helping them with, and [about] how they should be communicating with lenders and hotel suppliers, and helping them decipher new rules and how to protect the hotels if they are required, or choose, to convert hotels for a short period of time."

Summing up, Whitton said that he is optimistic about how the hospitality industry will recover from this period of severe disruption. "I am very optimistic that we will get through this as long as people treat each other fairly and reasonably, we are going to be fine," he said. "I think people will take a look at how they have been operating and events like this will cause systemic changes that are going to last for a very long time, because of the learning we do in this period." 

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