Consumers are usually requested to pay a deposit on a product or service as a form of commitment to an agreed sale. Once a sale is concluded, it becomes a legally-binding contract in which both the consumer and the seller have certain legal rights and obligations.

The terms of the sales contract are normally agreed between the two parties and confirmed in writing. One of these conditions usually concerns the agreed price and how the payment is to be made, including the deposit.

In these contracts there may also be information on what happens to the deposit if the consumer does not honour the sales agreement. It is here that consumers may come across the term “deposits are non-refundable in all circumstances”. But is this true? How does consumer legislation protect consumers in this regard?

While a paid deposit means the consumer is committed to continue with the purchase and pay in full when the product or service is provided, the seller is also committed to provide the product or service ordered.

This means that if something happens and the seller or service provider is unable to provide the product or service as described or on the date agreed, then consumers may opt to cancel the sale and claim a full refund of the deposit paid.

If the seller or service provider is unable to provide the product or service as described or on the date agreed, then consumers may opt to cancel the sale and claim a full refund of the deposit paid

The obligation to refund the deposit cannot be waived by sellers making consumers sign terms and conditions that diminish the latter’s legal rights. Such conditions are considered unfair and are not legally binding.

In situations where it is the consumer who, for various reasons, may decide to not proceed with the order or booked service, this may, in fact, result in the loss of the deposit paid. In addition to losing the deposit, consumers may also incur a penalty to compensate the trader for expenses incurred or loss of business.

However, it is legally unfair for traders to require consumers who fail to fulfil their obligations to pay a sum that is disproportionately high compared with the value of the goods or services purchased or hired. The amount kept or charged must be a genuine reflection of the trader’s actual losses that result directly from the sale’s cancellation and hence must not be excessive.

Furthermore, consumer legislation stipulates that if the terms and conditions of a sales contract allow the trader to retain sums paid by the consumer if the latter decides not to conclude or proceed with the contract, the latter should provide for the consumer to receive an equivalent amount of compensation from the trader in case it is the latter who is cancelling the contract.

If this is not the case, then the term giving the trader the automatic right to retain the deposit paid in case of cancellation would be considered unfair and therefore not legally binding.

What to do in case of a dispute?

• If a sales contract cannot be performed or needs to be cancelled, consumers should first check the terms and conditions they agreed to.

• If the contract stipulates the loss of all the deposit paid, if the amount is significant when compared to the costs or losses the trader may have incurred in relation to the cancelled sales transaction, consumers may first complain with the trader to try and find a reasonable solution.

• In situations where no agreement is reached, consumers may then seek the assistance of the Office for Consumer Affairs to be guided on their legal rights and if necessary, for assistance in dealing with the trader to find a reasonable and amicable solution.

Odette Vella, Director, Information and Research Directorate