deposit refunds and contracts with parents
A Lincolnshire County Court case earlier this year, when a judge
ordered a nursery operator to repay a deposit to parents who
cancelled a nursery place that they had secured for their child,
highlights concerns in the sector about when an operator can treat
a deposit as 'non-refundable'.
It is always difficult to comment on a specific case that is not
reported in full so the comments in this article are of a general
nature. However they set out the legal position and are intended to
provide guidance to the main pitfalls.
It is important to understand that an operator can retain a
deposit paid by parents to secure a nursery place but there must be
a contract between the operator and the parents that clarifies the
non-refundable nature of the deposit and the contract must comply
with certain legal requirements.
A contract does not, of course, need to be in writing, but an
unwritten contract is always open to dispute as there is no clear
evidence of what was agreed. Therefore, if you want to be able to
treat a deposit as non-refundable you need to have written terms
signed by both you and the parents, which clarify that the deposit
is not refundable. Taking a deposit without this is always open to
an argument about the terms on which the money was paid over. Even
if you argue that your staff always explain that a deposit is not
refundable, it is up to you to prove that. That is generally very
hard to do.
However even if you have a written contract, you can only
enforce a clause which states that a deposit is not refundable if
you can show that it complies with the Unfair Terms in Consumer
Contracts Regulations. These Regulations are designed to protect
'the consumer' which, for nurseries, means parents. Unfair terms
are those in your contract with parents that give you an unfair
advantage over the parent. Unfortunately, terms that may appear to
be perfectly reasonable to you (and to protect your interests) may
be unfair under the Regulations.
It is clear from the
guidance to the Regulations issued by the Office of Fair
Trading (OFT) that a genuine deposit, (like a reservation
fee paid to secure a nursery place) can be kept by the operator as
payment for the reservation but only if it is a small amount. It is
a matter of judgment as to what amount is acceptable but if the
deposit is of such a size that it could be regarded as an excessive
payment to stop the parents from cancelling the nursery place then
it may be a disguised penalty and won't be enforceable.
The Unfair Terms Regulations don't just apply to deposits. There
are various aspects of contracts between nursery operators and
parents that may fall to be assessed under the Regulations. It is a
requirement that terms in contracts with consumers must be clear,
easy to read and avoid jargon but the overriding principle is that
the terms must be fair to the consumer, both in their content and
the way they are brought to the consumer's attention.
The Regulations are enforced by the OFT, which can order unfair
terms to be altered and suspend use of the contract until this is
done. That can involve significant management time while it is
resolved and potential adverse publicity as the OFT can (and does)
publicise those cases where changes have been required.
points to note
- Develop a procedure for the reservation of nursery places and
make sure all staff taking deposits understand that they must use
that procedure
- Make sure your arrangements about deposits are in writing, fair
and clear.
