Oyo Hotels & Homes changes contract, fee structure irking hoteliers

Oyo will stop managing properties of its prominent brand Oyo Townhouse, meaning the owners will now have to pay the staff and other utilities, according to the new contracts that were rolled out earlier this month.

File photo
File photo

BENGALURU: SoftBank-backed Oyo Hotels & Homes has made significant changes in its new contracts with hotel owners, leaving many incensed.

Oyo will stop managing properties of its prominent brand Oyo Townhouse, meaning the owners will now have to pay the staff and other utilities, according to the new contracts that were rolled out earlier this month.

The contract also removes minimum guarantee fees. Importantly, the new contract includes a “force majeure” clause for situations like Covid-19, when all contracts will stand suspended — except when hotel owners have to pay dues to Oyo. The company said this was for specific cases where there are outstandings on behalf of the owner.

The new contract, which TOI has seen, also mentions that in case of a dispute, Oyo will have the right to appoint an arbitrator. This comes when the Gurgaon-based unicorn has been taken to court over multiple disputes over issues like allegedly not paying certain fees while vacating properties before the end of the mutually agreed lock-in period. These matters are being heard in various courts.

A group of such Oyo Townhouse property owners from Bengaluru have come together and written to Oyo founder Ritesh Agarwal over the changes, which they say are unviable and unfair in the current situation. For instance, the monthly cost of paying on-property staff and utility for Oyo Townhouse would be Rs 1.5-2 lakh. The new contracts also include a monthly 2% interest on payment dues, payment gateway charges, a commission for walk-in customers (who do not book via Oyo) and a monthly scorecard that will penalise or reward hotels, based on their ‘score’, decided at the discretion of Oyo.

All this comes when the company has had to fire thousands across the globe including India and is looking to cut operational costs. Previous contracts show Oyo mandated no interference from property owners in daily-affairs of running the property.

An Oyo spokesperson confirmed the changes saying such policies have “evolved” now. “As part of this contract, Oyo lends its Townhouse brand and generates demand for the property, while the property is operated by the asset owner. This type of model is recognised globally and prevalent with many global hospitality brands,” the company said.

On the force majeure clause, an Oyo spokesperson said, “This is for specific cases where there are outstandings on behalf of the owner — a lot of times customer payments are done at the hotel itself (and not digitally). Also there are times when Oyo makes payments on behalf of the hotel owner to external parties like online listing players.”

Across the country, there are over 250 such Townhouse properties, it’s premium offering launched in 2017. Oyo said some of the fee components are according to global practices.

“They (Oyo) are saying, if there is any force majeure in future, they want to suspend payments to owners but owners will have to pay to Oyo if there is any due. We won’t have any right but Oyo will have a right to collect money,” said Prakash N, one of the co-owners of Oyo’s Townhouse in Bengaluru.

Sandeep Jain, another Townhouse property owner, said the issue with such arbitrary changes is that they invested capital for branding the hotels according to Townhouse norms and now they can’t undo it amid a pandemic. “You ask the property owner to convert it according to your brand, taste and preferences and suddenly to say they can’t run the show now. Only they are in a win-win situation,” said Jain. Previously, lock-in periods for these properties were for over five years, the new contract puts it at three years.