Paying back a hotel deposit to a third party

Transferring an hotel deposit to another party

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From the hotels prospective, it has received a deposit from a client that it can no longer honour and instead of transferring the deposit back directly to the client, the client has requested it sends the funds to another hotel that can provide the accommodation. Is this acceptable?

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By accountaholic
11th May 2022 13:02

A couple of reasons why I would tell the first hotel to simply refund direct to the client and walk away:

1. There's a risk to the first hotel that something goes wrong with the second hotel, and the client asks the first hotel for a refund and says something like "I don't care where you sent my deposit, your contract is with me and I would like my money back, you can get your refund from hotel 2". Is it worth the risk that a a solicitor would pick holes in the correspondence about transferring the deposit making it not legally binding.

2. Possible money laundering risk. Depends how the deposit was first paid and did this present any AML risk, but passing funds to a third party could facilitate "cleaning" the dirty money.

Commercially hotel 1 may feel obliged to help out, but should only do so with eyes wide open.

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By David Ex
11th May 2022 13:28

stusedds-AT-me.com wrote:

Is this acceptable?

It doesn't worry me personally as it's not my money but, as you are asking a legal question, you might want to run it past a lawyer for a fuller analysis.

It sounds like a ridiculous idea and I can't believe hotel 1 would entertain it.

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By paul.benny
11th May 2022 14:09

We can only speculate at the hotel client's reasons. I can envisage situations where client debt may make it harder for them to pay the returned funds out to the new supplier.

I'm not too concerned about money laundering (on the facts given) as it's the supplier who is walking away from the contract. Make sure the paper trail is complete - credit note from first hotel, invoice from new hotel, agreement all round about refund.

Be careful too, about VAT that all parties are correctly accounting for it and not leaving any dangling amounts or duplications.

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RLI
By lionofludesch
11th May 2022 16:54

If you do it, make sure you get written confirmation, preferably with a "wet" signature, from the customer.

Try to discourage the customer from asking for the transfer by making the admin ridiculously onerous.

Or just say no, here's your money.

Key piece of information missing - is it a lot ?

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Replying to lionofludesch:
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By [email protected]
12th May 2022 11:13

£90k and international payment. Hotel is UK, client is Italian.

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Replying to [email protected]:
RLI
By lionofludesch
12th May 2022 12:32

stusedds-AT-me.com wrote:

£90k and international payment. Hotel is UK, client is Italian.

OK - well, there's a logic to the request but make sure you get the client to properly authorise it.

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Replying to [email protected]:
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By Leywood
12th May 2022 12:39

I wouldnt do it with my money.

Dont advise, point them in the direction of legal advice, especially if the 'k' is correct!

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Replying to [email protected]:
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By WhichTyler
12th May 2022 12:53

Presumably the Italian end doesn't want to incur 2 lots of international transfer charges and possible loss due to change of rates when they are not the ones responsible for the change

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By DKB-Sheffield
12th May 2022 14:21

Firstly... a £90K deposit is significant (even more so if this is just a deposit. It's not a small event, it must be considerable. It's certainly one worth taking legal advice on and I am almost sure your client will have some legal advice built into their insurance, membership organisations and the like.

MLR aside (whilst I know consideration of this is essential, the actual requirement to pay, or not to pay, would surely need to be considered first).

Where the hotel is not contractually obliged to make payment to Hotel B: As others have said, there seems to be some reason why the customer would wish to have the funds transferred directly to the new venue. However, the transaction charges and currency variances are somewhat minor in comparison to the £90K. They may even be insignificant as I would be certain an Italian company transacting in the UK to that level would have mitigation in place (e.g. using a GBP bank account, Transferwise etc.). If I were your client, I'd be considering the option of covering the costs - if only to ensure they keep the slate clean from a contractual perspective.

Where the hotel is contractually obliged to pay hotel B: There is another consideration in all this, and one that I have been only too accustomed in my past life! That is where the hotel cannot provide a service (accommodation, conference facilities, dining, congress venue, etc.) and is required - by the contract - to source an alternative venue. This is where the legals can become more complex as the contract to supply the (original) service is often between Hotel A, and Hotel B but, any services supplied outside of the contract are between Customer and Hotel B. If this is the case, and if the deposit is actually a full prepayment, £90K of anyone's money would say, take legal (as opposed to accounting) advice.

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Replying to DKB-Sheffield:
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By David Ex
12th May 2022 15:01

DKB-Sheffield wrote:

If this is the case, and if the deposit is actually a full prepayment, £90K of anyone's money would say, take legal (as opposed to accounting) advice.

Certainly better than going back to the client and saying “a load of people on a random Internet forum told me it’s OK”!

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Replying to David Ex:
RLI
By lionofludesch
12th May 2022 15:15

Or pass it to some solicitor's client account for them to pass on.

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