What a Buyout Is

What a buyout is

A buyout is an agreement to take the whole of a venue for a set period, so that no other guests are present. A hotel with 38 rooms takes no other bookings for those nights. A restaurant closes to the public for the evening. An island property receives one group and nobody else.

The buyer is paying for the absence of everyone else. The venue prices it on that basis, because for that period it has given up every other sale it could have made.

A partial buyout takes a defined part instead, such as a wing, a floor or one restaurant inside a larger hotel. The rest stays open to other guests. It costs less and it is a different product. The difference shows in the corridors, the pool and the car park, not in the contract’s title.

How a buyout is priced

There are three structures, and most contracts use one of the first two.

A buyout fee. This is a stated sum for exclusive use of the venue over the period. The rooms, and sometimes a food and drink arrangement, are usually defined separately. The figure is fixed.

A minimum spend. The group commits to spend an agreed total, and the venue grants exclusive use on the strength of it. Buyers misread this structure more often than any other. A minimum spend is neither a budget nor a cap. It is a promise to reach a figure. If the group spends less, the difference is generally still payable.

Both. The group pays a fee for exclusive use and commits to a minimum spend on top. This is common where the venue earns most of its money from food, drink and events, not from rooms.

The industry’s accepted-practices document says plainly that a food and beverage commitment may be written as a minimum amount of spending for the whole event. It does not have to depend on a particular menu or on attendance at particular functions. That is what a minimum spend is, and it is why the commitment stands when the programme changes.

Attrition, and why it applies to a buyout

Attrition is the trade’s word for the gap between what a group committed to and what it used.

The industry definition is worth quoting exactly. Guest room attrition is “the difference between the contract commitments and the actual number of sleeping rooms utilized or revenue generated”. An attrition clause “defines the extent of the group’s liability for failing to fulfill its minimum commitments and may contain numbers or formulas for determining the damages owed”. The food and beverage version measures the same gap against catering.

The same document then states the point that catches buyers. An attrition clause is not required for a contract to be binding. Where there is none, the law decides the parties’ obligations, and the lack of a clause does not necessarily mean that a party owes nothing.

So a contract with no attrition clause still carries exposure. That exposure has not been put into figures, which is worse for the party on the wrong side of it.

Settle two smaller points in the same conversation. One is whether the calculation runs per night or across the whole stay. The other is whether it includes or excludes tax and service charge. Both change the figure materially.

Cancelling

A cancellation clause sets out what is owed if a party cancels. It does not decide whether cancelling is possible.

The accepted-practices document puts it in one line: a party may always cancel a contract, and the issue is whether damages are owed and, if so, how much. This works in the buyer’s favour. The negotiation is about the damages, and they can be negotiated.

Two mechanisms do the work, and they behave differently.

Liquidated damages are a sum written into the contract as a reasonable estimate of the loss. Where they are agreed, that is generally the amount owed, and the injured party does not have to prove its actual loss.

Actual damages apply where there is no liquidated damages clause. The cancelling party is liable for losses the venue proves, such as unsold rooms, unsold meals and lost income at its other outlets. They are decided in court or arbitration, not by a formula.

The two interact in a way that catches buyers. A venue that can re-let the space has reduced its loss, and a party claiming actual damages must take reasonable steps to reduce its loss. This duty is called mitigation. Mitigation does not apply where the contract has a liquidated damages clause, unless the clause specifically requires it. A buyer who assumes the venue will have to re-sell the dates should check whether the signed clause says so.

Force majeure

Force majeure means a superior force: a problem a party could not foresee or control. A buyer hopes never to need this clause, and should read it first.

Two related doctrines sit beside it, and they are different. Excuse of performance covers events outside both parties’ control that make performance impossible or commercially impracticable. Frustration of purpose covers the case where performance is still possible, but an event outside one party’s control has destroyed its value to them. The wedding could still go ahead, but the reason for holding it has gone.

Which of the three applies to a set of facts depends on the wording of the contract and on the law that governs it. A venue contract in Greece is usually governed by Greek law. The international terms above describe how these contracts are drafted, not how any one legal system reads them. That is a question for a lawyer, and the time to ask it is before signing.

What exclusive use does not buy

Four things survive a buyout, and each of them has surprised someone.

• The venue’s own rules. Operating rules on rigging, noise, hours, waste and which contractors may work in the building are usually a separate document. The contract includes them by reference, and they stay binding.
• Exclusive contractors. Where a venue has an exclusive supplier for catering, audiovisual or production, taking the whole building does not free the buyer from using that supplier.
• Public and shared areas. A partial buyout leaves shared space shared. Even a full buyout may not cover a public right of way, a marina quay or a road.
• The shoreline. In Greece this rule is absolute. The aigialos and the paralia, the Greek legal terms for the seashore and the strip of land beside it, are public property in common use under Law 5092/2024. No payment, contract or exclusive use can close them. A property may hold a licensed concession over part of a beach, but it can never hold the beach. The rule is set out in the Greek shoreline and who may use it.

What to settle before signing

1. Is this a fee, a minimum spend, or both? If there is a minimum, what counts towards it: rooms, tax, service charge, the bar?
2. Is attrition calculated per night or cumulatively? If there is no clause, ask what the venue considers owed if the group shrinks.
3. What are the cancellation damages, and are they liquidated? If they are, mitigation probably does not apply.
4. What is excluded from exclusive use? Get the answer as a list of places and suppliers, not as a reassurance.

The fourth question decides whether the buyout delivers what it was bought for.