Oyo cancels contracts as revenues take a hit2 min read . Updated: 30 Jun 2020, 06:39 AM IST
- It terminated fixed income guarantees with over 250 Townhouse owners
- Oyo has offered new terms, urging Townhouse owners to adopt a revenue sharing model
BENGALURU : Hospitality unicorn Oyo has suspended contracts with over 250 hotel owners for its ‘Townhouse’ properties across India, as it looks to renegotiate fixed payment agreements after its revenues took a hit due to the nationwide lockdown, said two people, requesting anonymity.
The Softbank-backed startup has terminated minimum business guarantee (MGB) agreements, a fixed amount payable to property owners on a monthly basis, according to emails sent by Oyo to hoteliers. It has instead offered new terms, urging them to adopt a revenue sharing model, said at least six Oyo Townhouse property owners. Townhouse is positioned as a “mid-market boutique hotel brand", and the 250 hotel properties across 19 cities are co-owned with Oyo, and operate as franchises.
While a few hoteliers have decided to take legal action, others are trying to negotiate with other hotel aggregators, or sell their properties.
“These properties (Townhouse) fetch almost 15% of monthly revenue for Oyo and these hotels boast high occupancy rates. Most of these owners have now stopped receiving MGB pay-outs from Oyo since March, leaving the owners stranded," said the first person.
According to the earlier agreement, Oyo had agreed to source regular bookings and take care of online promotions. But with Oyo choosing to suspend fixed payments, the owners are forced to either take legal recourse or agree to the new terms. Townhouse co-owners said they had chosen to partner with Oyo because the fixed MBG payments were more attractive than other alternatives in the market. Typically, Townhouse property owners had entered into a 5-7 year contract, wherein Oyo would take over the property and renovate it. The contracts had a 2-3 year lock-in period.
An Oyo spokesperson confirmed that it had invoked the force majeure clause, and served notices for a certain number of asset partners “where revised terms could not be aligned". “In today’s time, where covid-19 has made an impact across all industries and led companies across the board to revisit the terms of their contract, we have also invoked relevant sections of our existing contracts to move to a more sustainable model of operations. Therefore, the minimum guarantee-based contracts represent an increasingly reduced share of our overall business/contracts."
For instance, Akash Nangia, a Goa-based hotelier, moved a local court after failing to reach an agreement with Oyo on the new terms. Many Townhouse owners, who cannot afford to move court, have chosen to either sell off the properties or approach other hotel aggregators and managed rental platforms.
A hotelier from Kolkata has decided to sell both his Townhouse properties to recover his investment. Two others based in Gurugram have approached a Delhi court after failing to arrive at a settlement. Soumya Rathore, a Delhi-based lawyer representing a group of Townhouse property owners, said a slowdown arising from a pandemic does not meet conditions of a force majeure event.