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Get legal adviceCan I claim back a non-refundable deposit?
Only in certain circumstances can a business keep your deposit or advance payments, or ask you to pay a cancellation charge.
If you cancel a holiday or a hotel room, for example, you may lose some money, especially if you’ve paid a non-refundable deposit.
Yet this isn’t always the case as the amount kept by the company needs to be fair and representable of its actual loss.
Here, we explain at what a non-refundable deposit is, when companies can keep them, and the circumstances in which you may be able to claim it back.
What is a non-refundable deposit?
A deposit is part of the total cost of something or an advance payment you make at the time of booking.
Businesses will sometimes insist it's non-refundable if you cancel and even write it into the contract. But a business can only do this if the contract term is fair.
Can a deposit be non-refundable?
Just because something is written in a contract, it doesn’t mean it is always legally binding, as businesses ordinarily cannot rely on unfair terms.
Only in certain circumstances can businesses keep your deposit or advance payments, or ask you to pay a cancellation charge.
If you cancel the contract, the business is generally only entitled to keep or receive an amount sufficient to cover their actual losses that directly result from your cancellation.
This could include costs already incurred or loss of profit.
When can a company keep my deposit?
Typically, the business has no entitlement to keep any amount that can be saved by finding another customer, or cancelling any other suppliers they’ve employed. That would likely constitute an unfair contract term under the Consumer Rights Act.
For example, if you booked a holiday which then sells out and the company finds another customer to take your place, it’s likely the only amount it can legitimately withhold from your deposit will be administrative costs.
But, if you cancel at unreasonably short notice and the business can’t find another customer, you could expect the business to keep most - if not all - of your deposit.
A breakdown of expenses
Which? recommends that you ask the business to explain how it calculated the amount it is keeping or charging you for cancelling the contract.
Was it a genuine reservation fee?
If the deposit you paid was a reasonable and genuine reservation fee and not an advance payment, it may be kept by the business as a payment for that reservation.
But, importantly, in most cases such deposits will only ever be a small percentage of the overall price.
Challenge unfair terms
The Competition and markets Authority (CMA) advises businesses to consider the following to avoid potential challenges of unfair terms from customers:
- a deposit is just to reserve the goods or services and is no more than a small percentage of the total price
- advance payments reflect expenses the business incurs, and leave customers with a reasonable amount still to pay on completion
- customers do not lose large advance payments if they cancel, in all circumstances
- it's best practice that businesses set sliding scales of cancellation charges so they cover their likely losses directly from the cancellation
Do I have to pay a cancellation charge?
A cancellation charge is similar to a deposit, but instead of paying up-front, you agree to pay a fee if you cancel the contract.
But, it is not necessarily fair just because it is in the contract you signed. If you are faced with a cancellation charge, it needs to be reasonable.
Cancellation charges should be a genuine estimate of the business’ direct loss. So you’re clear on any costs, you may want to query the cancellation charge and check when it would apply before signing a contract.
If you find an unfair term in a contract, you can also complain, as explained in our guide.