Your cancellation policy

Consumer Affairs Victoria recommends you have written agreements with your customers including details of a cancellation policy. The agreement becomes proof of what was agreed and helps to prevent ambiguity or misunderstanding. It can also stop either party forgetting or changing the terms later.

Your cancellation policy should spell out what happens if you or the customer cancels a booking.

Contract terms and fees

When you take a booking from a customer, you enter into a contract which includes terms and conditions. Ensure that the terms and conditions of the booking are fair, as the Australian Consumer Law (ACL) prohibits unfair contract terms.

If a contract lets you cancel a customer's accommodation booking in any circumstances without notice, it could be regarded as unfair. Unfair contract terms are void and you cannot enforce them against customers.

You may want to include specific terms and conditions about fees, deposits or cancellation charges. If you do include these, make customers aware of them before they book. Failure to disclose these conditions could also be considered unfair, due to a lack of transparency.

Make sure any fees or charges reflect your reasonable costs. If you don’t, they may be seen as penalties, which you generally cannot enforce.

Deposits greater than 10 per cent of the total cost of a booking may be considered to be prepayments, which your guests may not have to forfeit if they cancel their booking. Consider whether or not you need more than 10 per cent as a deposit.

Cancellation fees

Your ability to claim cancellation costs from a customer depends on certain factors. If you charge a cancellation fee, booking fee or administrative charge, it should not be excessive otherwise it may be regarded as an unfair contract term.

You should consider limiting the fee to the reasonable costs associated with making the booking and, if relevant, preparing the accommodation for the customer’s arrival, or reserving services for their use.

If the guest has paid you a deposit, then cancels the booking without a good reason (for example, if they just change their mind), you will usually be able to keep the deposit depending on the terms of the contract.

Generally, a fair deposit would not be more than 10 per cent of the total cost of the accommodation or service booked, unless your potential loss or inconvenience justifies a higher amount. Otherwise, such a higher amount may be seen as a pre-payment.

Pre-payments are refundable, minus any actual or reasonable costs you may have incurred before the booking was cancelled.

Cutting your losses

Before applying your cancellation policy, take into account the likelihood that losses can be limited by re-booking another guest.

While the chances of re-booking get smaller closer to the booking date, you should make reasonable efforts. If you re-book the accommodation for the same price, it may be difficult to argue that you have the right to impose a cancellation fee, except for costs already incurred.

If the contract allows you to reclaim losses from a customer, without taking reasonable steps to avoid them, it may be deemed unfair under the Australian Consumer Law. This could include any terms that allow you to claim the total cost of accommodation from a guest regardless of when they cancel the booking.

Deducting cancellation fees from credit cards

If you record credit card details when confirming a booking by phone, advise customers at the time that their card will be charged if they cancel – and ensure they accept that condition.

If you don’t, it may be considered an unauthorised transaction under the Australian Securities and Investment Commission’s ePayments Code External link To be safe, give reservations staff a script to follow.

By issuing a written confirmation, you can also prove to the credit card company that you met their conditions.

Last Updated 24th July 2017