What a Buyout Is

What a buyout is

A buyout is an agreement to take the whole of a venue for a defined 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.

What is being bought is not the building. It is the absence of everyone else, and the venue prices it accordingly, because for that period it has given up every other sale it could have made.

A partial buyout takes a defined part instead — a wing, a floor, a single restaurant inside a larger hotel — and leaves the rest trading. It is cheaper and it is a different product, and the difference shows up in the corridors, the pool and the car park rather than in the contract’s title.

How a buyout is priced

Three structures, and most contracts use one of the first two.

A buyout fee. A stated sum for exclusive use of the venue over the period, usually with the rooms, and sometimes with a food and beverage arrangement, defined separately. The number is the number.

A minimum spend. The group commits to generate an agreed total, and the venue grants exclusivity on the strength of it. This is the structure buyers most often misread. A minimum spend is not a budget and not a cap. It is a promise to reach a figure, and if the group’s actual spending falls short, the difference is generally still payable.

Both. A fee for the exclusivity, and a minimum spend on top of it. Common where the venue’s real revenue is in food, drink and events rather than in rooms.

The industry’s accepted-practices document is explicit that a food and beverage commitment may be written as a minimum amount of spending for the whole event, rather than tied to a particular menu or to attendance at particular functions. That is exactly what a minimum spend is, and it explains why it survives a change of programme.

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 actually used.

The industry definition is worth having exactly. Guest room attrition is “the difference between the contract commitments and the actual number of sleeping rooms utilized or revenue generated”, and 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.

Then comes the point that catches buyers, and it is stated plainly in the same document. An attrition clause is not required in order to have a binding contract. Where there is none, the parties’ obligations are determined as a matter of law, and the absence of a clause does not necessarily mean that a party owes nothing.

So a contract with no attrition clause is not a contract without exposure. It is a contract in which the exposure has not been quantified, which is worse to be on the wrong side of, not better.

Two smaller points are worth settling in the same conversation. Whether the calculation runs per night or cumulatively across the stay, and whether it is inclusive or exclusive of tax and service charge. Both change the number 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. Read that as liberating rather than alarming. The negotiation is about the damages, and it is a negotiation.

Two mechanisms do the work, and they behave differently.

Liquidated damages are a sum stipulated in the contract as a reasonable estimate of the loss. Where they are agreed, that is generally the amount owed, and the injured party is not required to prove actual loss.

Actual damages apply where no liquidated damages clause exists. The cancelling party is liable for losses the venue proves — unsold rooms, unsold meals, losses at ancillary outlets — established in court or arbitration rather than settled by a formula.

There is a trap sitting between them. A venue that can re-let the space has reduced its loss, and a party claiming actual damages must take reasonable steps to mitigate. But mitigation does not apply where the contract contains 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 clause they signed says so.

Force majeure

Force majeure is a superior force — a problem beyond the anticipation or control of a party. It is the clause a buyer hopes never to read and should read first.

Two related doctrines sit beside it and are not the same. Excuse of performance covers circumstances outside both parties’ control that make performance impossible or commercially impracticable. Frustration of purpose covers the case where performance remains perfectly possible but its value to one party has been destroyed by something outside their control — the wedding is still stageable, and the reason for staging it has gone.

Which of the three a set of facts falls into is decided by the words in the contract and by the law governing it. A venue contract in Greece will usually be governed by Greek law, and the international vocabulary above describes how these contracts are drafted rather than how any one legal system reads them. That is a question for counsel, and the time to ask it is before signature.

What exclusive use does not buy

Four things survive a buyout, and every one of them has surprised somebody.

• The venue’s own rules. Operating rules — rigging, noise, hours, waste, which contractors may work in the building — are usually a separate document incorporated into the contract by reference, and they remain binding.
• Exclusive contractors. Where a venue has an exclusive supplier for catering, audiovisual or production, taking the whole building does not release you from using them.
• 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 one is absolute. The aigialos and the paralia are public property in common use under Law 5092/2024, and no fee, contract or exclusivity can close them. A property may hold a licensed concession over part of a beach; 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? And if there is a minimum, what counts toward it — rooms, tax, service charge, the bar?
2. What is the attrition position, per night or cumulative? If there is no clause, ask what the venue considers to be 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 exclusivity? Get the answer as a list of places and suppliers, not as a reassurance.

The fourth is the one that decides whether the buyout delivers the thing it was bought for.