Throughout the pandemic, with government guidance and lockdown laws, businesses may have been unable to fulfil their contracts with third parties. Similarly, consumers who no longer require the goods or services due to COVID disruptions have been forced to cancel contracts. With neither party at fault for the cancellation, the question of refunds can become a grey area.
Firstly, it is important to note that the nature of the refund will usually depend on the services or goods provided and the terms upon which they were entered into. In respect of rural businesses, it is not expected that a contract such as event hire of steadings or shoot day catering to foresee and provide for a global pandemic, but the general principle is that the terms of the contract must be fair under the consumer rights legislation, notably the Consumer Rights Act 2015. Part 2 of the Act looks at unfair terms and what is ‘fair’ will depend on the circumstances. If there is a failure to issue refunds for cancelled services, businesses are likely to be in breach of the provisions contained in the Act.
In addition to the legislation, the Competition and Markets Authority (‘CMA’) has released recent guidance to business and traders on their view on what is fair. In the guidance, the CMA takes the view that if goods or services have not been provided due to lockdown laws then a customer is generally entitled to a full refund. This applies where the goods or services are made available, but the customer is prevented from accessing them.
The CMA also provides limited exceptions to a full refund. One of the exceptions noted is businesses may be able to deduct a contribution to the costs it has already incurred; for example, any venue preparation done by a wedding business before the ceremony or reception. In practice, this is usually done by way of non-refundable deposit or cancellation fees. The fairness question is particularly relevant here and the general rule under the legislation is that it must not represent a ‘benefit’ to the business. In other words, it must be used to cover costs legitimately incurred by the business.
For the best chance of having a fair non-refundable deposit or “cancellation charges” it is important to clearly set out who is paying and why it is non-refundable. Having a clear agreement with explicit consent to this arrangement will put the business at an advantage should they be required to justify any such charges or fees.
Rural businesses often have a complexity of contracts especially in situations where farmers are wishing to diversify their holdings beyond agriculture. Gillespie Macandrew has the experience and expertise when it comes to providing tailored advice for whatever your business needs.
