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Hotel apologizes after 3,000 bad reviews

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One of the coolest small towns in the USA may now be home to one of the most trolled businesses on the Internet, and the owner is apologizing.

A day after the New York Post publicized the Union Street Guest House's posted policy to charge guests $500 for bad online reviews, the Internet piled on the Hudson Valley hotelier's Facebook page as well as Yelp, which has removed more than 3,000 posts it deemed inappropriate.

"Quite frankly, I'm embarrassed. This indeed was a policy of the Union Street Guest House," Chris Wagoner, the owner of the Union Street Guest House said in a statement issued late Tuesday afternoon. "It was originally intended as a joke and never something I told employees to enforce. However, since it was listed on our website it did represent an official policy. I now realize this joke was made in poor taste and not at all funny. This is no longer a policy of Union Street Guest House and we have taken it off of our website."

Although the hotel removed the $500 policy from its website Monday and said it was a joke, at least one bad review posted on Yelp in 2013 states the owner did indeed try to collect $500.

"I've also read the reviews from guests saying we tried to enforce the negative reviews policy on them and for that I apologize," Wagoner said in the letter. "It was never my intention for anyone to pay this fine. The instances where an attempt was made to collect the fees were a breakdown in communication between my staff and me, and for that I accept full responsibility. Including the fine for negative reviews as part of our policy was a mistake. That's not the type of business that we run.It was a case of a joke gone very, very bad."

Few businesses can afford to ignore review sites.

One hotel near Times Square in New York City, continues to attract guests despite its past perch atop TripAdvisor's list of the dirtiest hotels in America. Despite that reputation, the Hotel Carter is up for sale with a price tag around $180 million. It is expected to sell before the end of the year, said Lawrence Wolfe, a senior managing director at Eastdil Secured real estate brokerage, who is handling the sale.

Read More For sale: Dirtiest hotel in America, only $180 million

But few hotels are review-proof, he said.

"You can't extrapolate from Times Square (where hotels operate at 95 percent occupancy) to the broader hotel industry (where occupancy is typically in the low 70s,)" Wolfe said Tuesday in an email to CNBC. "There is an infinite demand for well-priced rooms in New York City; the Carter is very well located and the reviews have improved since the current management team took over 15 months ago."

As for the hotel getting skewered, it's not in Times Square but in the Hudson River Valley town of Hudson, which has been called one of the best small towns in America, prized for its architecture and antiquing. On the hill overlooking the town is Olana, the unique home of Frederic Edwin Church, one of the leaders of the the Hudson River School of painting.

Jan Chesterton, the president of the New York State Hospitality and Tourism Association was not pleased to hear of the Hudson Valley hotel's $500 posting. "Posting warnings and penalties to potential guests is not only inhospitable and violates the fundamental rule that all charges must be knowingly approved by a guest and must be commercially reasonable under consumer protection; it also drastically minimizes the chance for repeat business, word-of-mouth referrals,and positive online reviews," she told CNBC.

Both TripAdvisor and Yelp weighed in on the matter as well.

"It is completely against the spirit and policies of our site for any business owner to attempt to bully or intimidate reviewers who have had a negative experience. We have sent this property correspondence addressing that issue," Kevin Carter, a TripAdvisor spokesman said in an email to CNBC. "It appears that the Union Street Guest House has removed the clause threatening guests with financial penalties from their website. This is a positive result for travelers and free speech supporters alike. TripAdvisor will be monitoring this property going forward and will continue to be on the lookout for policies like this one."

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Yelp was also keeping busy as a result of the attention. "We encourage people to share their first-hand experiences; reviews that are contributed as a result of media attention and do not reflect first-hand experiences run counter to Yelp's Terms of Service and will be removed from the site," Yelp Spokeswoman Hannah Cheesman said.

"Consumers place a high priority on customer service and they clearly don't appreciate efforts by business owners to be intimidated, bullied, harassed or silenced," she said.

One law proposed earlier this year in the California Assembly, the so-called "Yelp law," seeks to protect consumers' rights to post online comments unless they knowingly give clear and intelligent consent to not comment on a topic. But even if the bill becomes law, businesses are likely to seek out its exemptions anyhow, said Jonathan Rubens, an attorney in San Francisco who specializes in business transactions and e-commerce law.

"I would not advise any business to adopt a no-review policy. It eventually will backfire," he said. The non-disclosure clause might give businesses "perceived protections" but they're more likely to wind up with "megabytes of bad publicity."

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—By CNBC's Amy Langfield. Follow Road Warrior on Twitter at @CNBCtravel.

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