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Oyo cancels contracts with over 250 hotels as revenue takes a hit

Hospitality unicorn Oyo has suspended contracts with over 250 hotel owners for its ‘Townhouse’ properties across India, because it looks to renegotiate fixed payment agreements after its revenues took successful thanks to the nationwide lockdown, said two people, requesting anonymity.

The Softbank-backed startup has terminated minimum business guarantee (MGB) agreements, a hard and fast amount payable to property owners on a monthly basis, consistent with emails sent by Oyo to hoteliers. it’s instead offered new terms, urging them to adopt a distribution model, said a minimum of six Oyo Townhouse property owners. Townhouse is positioned as a “mid-market boutique hotel brand”, and therefore the 250 hotel properties across 19 cities are co-owned with Oyo, and operate as franchises.

While a couple of hoteliers have decided to require action , others try to barter 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 those owners have now stopped receiving MGB pay-outs from Oyo since March, leaving the owners stranded,” said the primary person.

According to the sooner agreement, Oyo had agreed to source regular bookings and lookout of online promotions. But with Oyo choosing to suspend fixed payments, the owners are forced to either take legal recourse or comply with the new terms. Townhouse co-owners said that they had chosen to partner with Oyo because the fixed MBG payments were more attractive than other alternatives within 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 act of God clause, and served notices for a particular number of asset partners “where revised terms couldn’t be aligned”. “In today’s time, where covid-19 has made an impression across all industries and led companies across the board to revisit the terms of their contract, we’ve also invoked relevant sections of our existing contracts to maneuver 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 an area court after failing to succeed in an agreement with Oyo on the new terms. Many Townhouse owners, who cannot afford to maneuver court, have chosen to either unload 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 reach a settlement. Soumya Rathore, a Delhi-based lawyer representing a gaggle of Townhouse property owners, said a slowdown arising from an epidemic doesn’t meet conditions of a act of God event.

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