There are rules that businesses need to comply with when offering lay-by agreements to their customers.
An agreement is considered to be a lay-by if the consumer:
- pays for the goods in at least two instalments (when the agreement is called a lay-by), or
- pays for the goods in at least three instalments (when the agreement is not specifically called a lay-by), and
- does not receive the goods until the full price has been paid.
Any deposit paid by the consumer is an instalment.
You may have obligations under the laws about lay-by agreements even if you do not call the agreement a ‘lay-by’.
You must provide a copy of the lay-by agreement to the customer.
You must ensure that a lay-by agreement is:
- in writing
- specifies all terms and conditions, including any termination charge
- is transparent, which means that it must be expressed in plain language, legible and clearly presented.
You may cancel the lay-by agreement only if:
- the customer has breached a term of the agreement (such as missing a scheduled payment)
- you are no longer engaged in trade or commerce, or
- the goods are no longer available due to circumstances outside of your control.
If you cancel the lay-by agreement or if the customer cancels the lay-by agreement because of something that was your fault (for example, the goods were damaged while in storage) you will not be able to charge the customer the termination fee.
A customer can cancel the lay-by agreement any time before delivery of the goods. If the customer cancels the lay-by agreement you must refund the customer all amounts paid less any termination fee that was clearly specified in the lay-by agreement.
You can only charge the customer with a lay-by termination fee if they cancel the agreement.
There is no set amount or percentage for a termination fee, but it must not be more than your ‘reasonable costs’ relating to the lay-by agreement (for example, storage and administrative costs that apply to the lay-by agreement). What is ‘reasonable’ will depend on the circumstances and you should be prepared to justify that your costs are reasonable.
If the customer’s lay-by instalments do not cover the termination fee, you are entitled to recover the outstanding amount as a debt. This should be clearly stated in the lay-by agreement along with any other details of termination fees so that your obligation to have a transparent lay-by agreement is fulfilled.
Apart from the termination charge, you are not entitled to damages or any other remedy for the termination of the lay-by agreement.
Lay-by agreements - for consumers
Sales practices: a guide for businesses and legal practitioners - Australian Consumer Law Guidance