Why it pays to know your cancellation policy

A crisis such as flooding or bushfires may lead some guests to postpone or cancel their visit.

Your rights and obligations in these circumstances will depend on the situation, but be warned; the lack of a clear cancellation policy can lead to disputes with guests and unit owners.

Why you should have a cancellation policy

You can avoid many potential problems by including a cancellation policy in your written booking agreement with guests and your letting appointment with owners. Your cancellation policy should spell out what happens if a booking is cancelled by you or your guest because, due to events beyond all parties’ control, it is impossible to fulfil the original agreement. Such instances are known as a “frustrated contract”.

A contract is not frustrated however, if the situation means that it is only inconvenient, difficult or expensive to carry out.

For online bookings, you should make terms and conditions easily available and identifiable on your website to avoid possible disputes. Failure to disclose these conditions could be considered unfair, due to a lack of transparency, and may therefore be unenforceable.

You should also make sure that any cancellation fees or charges payable by your guests do not exceed your reasonable costs (which may include the opportunity costs to the owner). If you don’t, they may be seen as penalties, which you generally cannot enforce.

Cancellation because of a natural disaster or other crisis

You and your guests may be released from honouring a contract (eg a booking) if, for example:

• the accommodation has been destroyed;
• access roads have been closed; or
• the authorities have advised that the area is not safe to enter.

There may also be other circumstances in which you or your guests are required to leave an area, or are prevented from entering. These would all be viewed as frustrated contracts.

Cancellation because of bad weather

Poor or less-than-ideal weather will not frustrate a contract and the guest will not be entitled to a refund. Such circumstances, although unfortunate, are unlikely to frustrate performance of the contract as they do not prevent the booking from going ahead. For example, you cannot be held responsible for external environmental conditions outside your control such as:

• no snow at a ski resort;
• rain during a weekend getaway at the beach;
• colder weather than expected on a summer camping expedition.

Other cancellation rights

A frustrated contract is not the only situation where a guest may be entitled to cancel a booking or seek a refund. Your guests also have certain rights in the form of consumer guarantees under the Australian Consumer Law (ACL).

Essentially, accommodation must be fit for the purpose specified to the customer, for example it must perform the functions required.

If it is not, the guest may be able to cancel the booking and obtain a refund (less any amount for any services already provided), depending on whether the problem with the accommodation is major or cannot be remedied.

If you also make claims about accommodation that you can’t fulfil – for example, if it does not live up to any representations you have made about it (“guaranteed to see a whale from your balcony every day!”) – the guest may have access to a range of other remedies under the ACL, for misleading or deceptive conduct.

Cancellation fees and deposits

Your ability to claim cancellation costs from a guest 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 guest’s arrival, or reserving services for their use. To varying degrees last minute cancellations may reasonably include the lost opportunity to let the accommodation as a cancellation cost.

Generally, a fair deposit should not be more than ten percent 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.

If the guest has paid a deposit and 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, and provided it doesn’t amount to a pre-payment over and above a reasonable deposit.

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 Investments Commission’s ePayments Code, which may apply to your bank. By issuing a written confirmation, you can also prove to the credit card company that you met their conditions.

Put it in writing

No matter what cancellation policy you decide upon, like most agreements it’s significantly more effective if you have it in writing, and in most instances not effective at all unless it is in writing.

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Disclaimer – This article is provided for information purposes only and should not be regarded as legal advice.

Col Myers

Col Myers is Principal and Accredited Property Law Specialist at Small Myers Hughes