Following on from the Deposits, Booking Fees and Mobilisation Payments article in The Library, to avoid confusion, I have written this essay as a separate issue, as the other terms are variations on the same subject – asking for money in advance of a project.
Non-Refundable Deposits must be considered differently, as they involve Contract terminology i.e. they appear to be separate in contractual terms. By requesting payment from a customer for an amount of money that is not intended at the time of asking to be repaid by the Contractor is not the same as asking for payment against some future benefit.
A Deposit is part of the total cost of a project sum total, to be paid as confirmation of the booking of the works scheduled in a quotation. This sum – often a percentage of the total – is payable against an invoice, is subject to the Consumer Credit Act 1974 as amended in 2000, which provides an opportunity for the customer to cancel within certain time limits.
Some businesses insist that the Deposit is non-refundable, and even write this term into their contract, regardless of the Consumer Credit Act – in fact, ignoring it completely! Every contract should have a ‘cooling off’ period notice in the Terms & Conditions as a matter of course, and the Contractor should be drawing attention to this matter at the time of tendering.
Non-Refundable Deposits may be considered as being unfair terms under the Consumer Credit Act and as such are not valid.
Some of the deposit money may be refundable after the cooling off period, but only if the Contractor can prove actual loss of profit (i.e. that they were unable to fill the work slot due to short notice), or actual cost; any refund being the difference between that proven cost or loss of profit and the amount paid as a deposit. This sum should be considered to be invoiceable, with any VAT as applicable, together with a Credit Note, including any VAT against the original Deposit invoice for the balance between the two figures.
Claims of loss of profit or actual costs must be provided in writing and proven with factual evidence of such losses.
During the cooling off period, all of the money paid as a deposit must be repaid on request, regardless of cost or loss of profit.
After the cooling off period, all of the money paid as a deposit must be refunded if no provable losses have been incurred.
The Contractor has no entitlement to retain any of the deposit money if the contract is cancelled unless actual loss can be proven. This is in line with those contracts used in other businesses, including holiday lets and hot air balloon bookings for example, where cancellation fees are charged in the event of cancellation, and may vary according to the length of time between the start date and time of cancelling. If the holiday let owner cannot fill the cancelled time slot, a higher amount may be retained, and if sufficient time is available to find another customer, the amount is lesser. In other words, these fees are set on a sliding scale.
Therefore, a Contractor would need to prove that they had no other work available because of the cancellation, not simply that they had no other work that could be done instead.
Although this article is written separately from the Deposits, Booking Fees and Mobilisation Payments feature in The Landscape Library, is may be useful to compare the options for securing payment in advance and plan accordingly.
Alan Sargent