According to sources, the hospitality firm, Oyo has suspended contracts with more than 250 hotel owners across India, as they are considering a renegotiation in fixed payment agreements as revenues took a hit in nationwide lockdown.
Why Would This Happen?
As per the information provided by Oyo to hoteliers, the Softbank-backed startup has terminated minimum business guarantee (MGB) agreements, in simple words, a fixed amount payable to property owners on a monthly basis.
Instead of that, they have offered new terms, further urging them to adopt a revenue sharing model as informed by Oyo Townhouse property owners.
Where Townhouse is considered to be the “mid-market boutique hotel brand”, and the 250 hotel properties across 19 cities are co-owned with Oyo, and operate as franchises.
What Does The Hotelier Say?
In response to this email, a few hoteliers have decided to take legal action, while others are trying to negotiate with other hotel aggregators, or the worst, sell their properties.
According to them, “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,”.
Prior to this, Oyo agreed to source regular bookings and take care of online promotions in their agreement.
However, with the latest move of Oyo suspending fixed payments, the owners are forced to either take legal recourse or agree to the new terms.
Moreover, the Townhouse co-owners informed that they had chosen to partner with Oyo earlier because of the fixed MBG payments.
As they were more attractive than other alternatives in the market.
Normally, Townhouse property owners had entered into a 5-7 year contract, wherein Oyo would take over the property and renovate it.
The contracts also had a 2-3 year lock-in period.
What Does Oyo Say?
In response to the queries, an Oyo spokesperson confirmed that they had invoked the force majeure clause, and served notices for a certain number of asset partners “where revised terms could not be aligned”.
He further said, “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,”.
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