Are non-refundable deposits really non-refundable?
- Are they legal?
- Can you dispute them?
- How we can help
- Useful Links
Are they legal?
Yes, non-refundable deposits are legal in NSW, but that doesn’t mean you can never get your money back. The real questions are whether the business can justify the deposit amount, and why the agreement was terminated.
Let’s say you engaged a caterer to handle an event for you. The total price is $2000, and they requested a non-refundable deposit of $500. If you later cancel the event, the caterer would be entitled to keep the deposit, provided they can justify that expense. So if they had already purchased food, or had already secured staff for that date, they may well be entitled to keep the entire deposit. In fact, if you cancelled the event at the last minute, they may even be able to pursue you for more money. However, let’s say you booked them 3 months before the event, and then changed your mind only 2 days later. In that case you would have a better chance of getting your money back, because it is unlikely that they have absorbed any costs yet.
As with so many elements of the ‘law’, it all comes down to being ‘reasonable’. If the deposit amount is a ‘reasonable’ figure to cover any out of pocket expenses the caterer may absorb in the lead-up to the event, it is likely they will be able to keep the deposit. However, if the deposit amount is excessive, and ‘unfair’ to you, it is less likely to be considered reasonable.
We recently handled a matter for a young couple who had engaged a wedding photographer for their big day. The total price was for $4000, with a non-refundable deposit of $2000 (ie. 50%). Furthermore, the photographer had requested full payment of the remaining $2000 a week before the event. The couple had not signed the final agreement, but that doesn’t really matter, because it was clear the agreement was proceeding (see our article on implied acceptance). To complicate matters further, the couple had paid the deposit in cash, and had not obtained a receipt.
In the final 2 weeks before the wedding, the relationship between our clients and the photographer deteriorated. The photographer insisted they bring the remaining $2000 cash to him. When they said they couldn’t travel that far mid week, and offered to EFT the money, he told them they would have to transfer $2,200, because he would now have to charge GST as well.
The photographer also told them less than a week from the wedding date that he would not be the photographer for the event, but instead he would only be present for a couple of hours. Instead he was sending one of his sub-contractors.
Relations got so bad that our clients cancelled his services the day before the wedding. Now you might think that our clients had no chance of getting their deposit back based on the following:
- They cancelled his services within 24 hours
- Clearly he had engaged the services of other photographers
- His chances of securing another job for that weekend were limited with only 24 hours notice
- His ‘terms and conditions’ clearly stated the deposit was non-refundable
However, there were several counter-arguments to be made:
- The $2000 was not a ‘reasonable’ figure for his expenses in the lead-up to the wedding.
- Full payment was not necessary or justified to cover his costs, particularly when considering the bulk of a wedding photographer’s work is done on the wedding day, and the proceeding days when the images are downloaded, edited, printed etc.
- He had not provided a receipt for the cash deposit (this is required in NSW)
- He changed the contract price after agreement.
Can you dispute them?
The first question we addressed with our clients was: What would a ‘reasonable’ refund be?
Given the photographer had completed a 30 minute pre-wedding shoot, and provided one large format framed photograph, it was only ‘reasonable’ to make allowances for his out of pocket expenses and his time in providing those services. We estimated his effort and expenses to be $400.
Initially we sent a letter outlining our reasons for requesting a refund, and detailing the break-down of expenses. After no response to that letter we took the matter to the NSW Civil and Administrative Tribunal (NCAT). Not surprisingly we then had a response, with a counter-offer of $500. Our clients were not satisfied with that figure, keeping in mind they had now engaged legal services on top of their deposit. We sent a second letter, to which we received no response, so the matter proceeded to NCAT. Our clients were awarded the full $1600 they were seeking. Granted, they had incurred legal fees of about $600 (2 letters, and preparation of their NCAT lodgement documents) but they still walked away with a $1000 refund of their deposit.
So when dealing with a ‘non-refundable’ deposit, keep the following in mind:
- Always consider whether the amount requested was ‘reasonable’
- What expenses, or loss of income can they justify if you cancel?
- If you do request a refund, make sure the figure you request is ‘reasonable’ considering their expenses (the authorities will always look favourably upon any attempts to be ‘reasonable’ in your dealings)
Remember the trader may be fully entitled to retain the deposit. If you are a trader, it is worth reviewing your refund policy to ensure your interests are protected. The following factors will assist:
- If the trader’s terms and conditions clearly state the deposit is non-refundable, and this was conveyed to you;
- The entirety of their trading terms are fair and reasonable;
- The deposit amount is proportionate to their expenses, or potential loss of income, should you terminate the agreement;
- The trader was ready and willing to perform the agreed tasks;
- You have signed a contract which clearly states the deposit is non-refundable – always read a contract carefully before signing. Feel free to openly discuss any clauses with the trader. They must not mislead or deceive you in any way.
How can we help?
Prior to lodging a claim with NCAT, it is often best to try and deal with the matter yourself, or with the assistance of a solicitor, for a few reasons:
- One letter from a solicitor is often not too expensive (around $300 from us), or you can write to them yourself.
- The authorities will consider any attempt to resolve the issue without their involvement favourably. The courts, and NCAT are busy enough with a backlog of issues, so they do not appreciate matters in which neither party have attempted to resolve the issue ‘reasonably’, prior to any lodgement of a claim.
- We can help you identify the key ‘legal issues’. For example, with the photographer, we focused on:
- Unfair terms and conditions
- Absence of receipt for the cash deposit
- Request for GST, if not paid in cash (which indicated he had no intention of declaring the income to the ATO)
- Renegotiation of the contract, since he was changing his prices after agreement to the contract
- Breach of contract terms, when he announced the intention to send another photographer instead of himself
NCAT generally discourages lawyers from being involved in the hearing, in an attempt to keep the consumer’s costs down. In this matter our clients attended the hearing themselves, but were armed with all the legal arguments they needed to succeed in their claim.
If you feel you have been unfairly penalised by a non-refundable deposit, we hope this article has helped clarify your rights, and a path forward. Please keep us in mind if you would like any legal assistance on the matter.
Department of Fair Trading NSW:
This content is intended as information only, and does not constitute legal advice. Your use of this website does not create a solicitor-client relationship, and as such we recommend you seek independent legal advice, specific to your circumstances prior to acting or relying on this content.