Rules for lay-by agreements

There are rules that businesses need to comply with when offering lay-by agreements to their customers.

What is a lay-by agreement?

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’.

Business requirements for lay-by agreements

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.

Cancellation of a lay-by agreement

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.

Termination fees

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.

Check your agreements

Check if your agreements fall under the legal definition of a lay-by agreement and that your business meets its lay-by obligations to customers.

More information

Lay-by agreements - for consumers

Sales practices: a guide for businesses and legal practitioners - Australian Consumer Law Guidance