Deposits and cancellation fees: what’s the position for businesses when consumers seek refunds due to COVID-19?

June 16, 2020

Whilst we are seeing an easing of the unprecedent restrictions put in place by the Government, the serious impact on the ability of holding, and even planning, events in the coming months has not itself reduced.

But what happens if you are holding (or, perhaps have spent) deposits that you have taken from consumers? Or, given that the event has been cancelled, can you deduct from monies held those cancellation charges that you included in your standard T&Cs?

The answers to the above questions lie in contract law, consumer law and insurance law. In addition, businesses will need to consider commercial aspects such as PR and business development. And for those businesses involved in weddings / private events, holiday accommodation, and nurseries / childcare there is the added issue of investigation by the Competition and Markets Authority!

Things for businesses to think about include:

  • Do the terms of your contracts allow for you to retain deposits where cancellation is by you, or caused by a third party? If such provisions exist, are they enforceable where little or no services or goods are supplied?
  • What costs have been incurred by the business in the lead up to the now cancelled event?
  • Are cancellation fees fair and used to contribute to direct costs that you have incurred that are not recoverable elsewhere? Can you deduct the cancellation fees from monies received or are the cancellation fees unfair?
  • Do you have business interruption insurance? If so, does it cover governmental ordered restrictions?
  • Does your consumer have insurance for the event? If so, you can expect that insurer requesting and scrutinising your terms of business in order to encourage the consumer to minimise loss.
  • Is it possible to postpone the event if that is what your customer is requesting? If so, what is a suitable postponed date? If you agree to postpone once, will you be obliged to continue to postpone until restrictions are lifted if such restrictions are extended?

When considering the above points, it is important for businesses to keep in mind the potential for reputational backlash. For one-off event businesses, it may be equally important to be attracting new business as it is to be dealing with current business. Flexibility of service providers will no doubt feature high on consumers’ list of must-haves when arranging events going forwards.

Take home points

The worries of businesses which are facing severe financial hardship under current circumstances is understandable. Many businesses are also trying to balance their worries with assisting and supporting their customers through these difficult times. Below are a few points to keep in mind now and in the coming weeks and months.

  • Generally, the Competition and Markets Authority’s position is that refunds should be made in full to consumers where no services or goods are supplied by businesses, even if this is due to Government public health measures.  This will apply to refunds that are expressed as refundable and those which are stated to be non-refundable.   
  • Whilst it may be possible to agree with your customer to reschedule or postpone the event, as your customer is a consumer, you must not pressurise your customer in to rescheduling or postponing and a refund option must be just as available.
  • Refunds must be processed within a reasonable time, and you should keep your customers updated as to the timing of the process. You should not be charging your customers an administrative fee to process the refunds.
  • Look to any onwards business-to-business contracts that you have entered into in respect of cancelled events, in order to assess any contractual exposure or limitations on liability.
  • It is important to keep focused on your brand. Even if it results in the business incurring costs, a good reputation in the market should be a priority. 
  • Look to the insurance that you do have in place, and, where possible, seek to put in place appropriate policies in the future, balanced against the cost of doing so.
  • Avoid taking steps that risk attracting criticism from your customers and ultimately from the Competition and Markets Authority, Advertising Standards Authority, or the Information Commissioner’s Office.
  • Check what is available to you from the UK government. Please click here to view further articles relating to Covid-19

 


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Stephen Sidkin
Partner
Direct dial: +44 (0)7788 148 537
slsidkin@foxwilliams.com

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lcoffey@foxwilliams.com

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