Are Cancellation Fees Legal? (2020 Update)
Concerned about losing money because clients fail to show up to appointments? Learn about when you can charge cancellation fees here.
Anyone in the services industry can tell you how frustrating it is when a client fails to show up. It can also be difficult if they cancel their booking within a short period of time. You may consider implementing cancellation fees to protect yourself from this situation. But when can you charge one? How can it be charged? And what limits are there? Read on to find out everything you need to know about cancellation fees.
What Are Cancellation Fees?
Cancellation fees are fees that you charge when the customer fails to turn up to an appointment or pre-booked service. Their purpose is for you to recoup some of the lost revenue, that you would have received if they showed up to their appointment. Since you were prevented from acquiring another client, they act as a form of compensation to you. The terms of the cancellation fees should be specified in your terms and conditions.
Within this, you should identify the cancellation process and the fees that will be charged in the event of an unreasonable cancellation. Furthermore, you should identify the minimum amount of time to be considered reasonable notice of cancellation. It is important to be clear the process that a client can follow to cancel without incurring a cancellation fee. For example, you can offer a full refund when up to 7 days’ notice is given, and only 50% after that. Furthermore, the cancellation fee itself must be reasonable and not disproportionate. A failure to be transparent about cancellation fees could override the cancellation agreement due to it being unfair.
When Can Cancellation Fees Be Charged?
Primarily, you can charge a cancellation fee if they fail to give you reasonable notice if they cancel or fail to show up to an appointment. Moreover, you must make a ‘reasonable’ attempt to fulfil the vacancy. A reasonable attempt is in reference to the extent of time that they give you notice. Furthermore, even if they give you reasons, you may still be entitled to charge cancellation fees. However, you will not be able to charge a cancellation fee if your client cancels or does not show as a result of circumstances out of their control, such as extreme weather. In these cases, the contract will be frustrated, causing the agreement to be terminated. Cancellation fees can either be in the form of a credit card charge or keeping the deposit.
You should give due weight to cancellations that are unavoidable. If an intervening event has occurred, it may be wise to instead offer your client an exchange or voucher. For example, the COVID-19 pandemic has meant that many people cannot undertake their usual activities. In this sense, you need to be careful to ensure that you’re still complying with consumer guarantees. Further, customers will remember how your business handles unavoidable cancellations.
The key point to remember, is that you need to make sure you communicate your cancellation fees to your clients, prior to the services agreement. Given the difficulties that can arise when clients cancel, and whether their justifications are reasonable, it is best to get in contact with a contract lawyer to ensure you remain compliant with the law.
Lachlan is an intern at Lawpath as part of the content team. He is currently studying a Juris Doctor at the University of Sydney. Lachlan has a keen interest in corporate law and commercial litigation.