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When guests cancel, the business should remember that they may be a customer in the future. In most cases, they cancel for a reason that is genuine and important. The business may be able to negotiate something to suit both parties. In a crisis such as a bushfire, business managers and staff will be operating under pressure.
Remember that the crisis will pass and the business is for the long term. If tourism businesses keep the goodwill of their customers in difficult times, it can pay off in the future.
Businesses can avoid many potential problems by including a cancellation policy in a written booking agreement.
Cancellation policies and the law
When a business takes a booking from a customer, they enter into a contract which includes terms and conditions. Businesses should ensure that these are fair, because the Australian Consumer Law (ACL) prohibits unfair contract terms. For example, if a contract lets the business cancel a customer's accommodation booking in any circumstances without notice, it could be regarded as unfair.
Unfair contract terms are void and cannot be enforced against customers. Businesses may want to include specific terms and conditions about fees, deposits or cancellation charges. If they do include these, they should make customers aware of them before they book. Failure to disclose these conditions could also be considered unfair, due to a lack of transparency.
The ACL bans businesses from proposing, using, or relying on unfair contract terms in standard form contracts with consumers and small businesses. Penalties can be as high as:
- $50 million for businesses
- $2.5 million for individuals.
Make sure any fees or charges reflect reasonable costs. Otherwise, they may be seen as penalties, which generally cannot be enforced. Deposits greater than 10 per cent of the total cost of a booking may be considered to be prepayments, which guests may not have to forfeit if they cancel their booking. Businesses should consider whether or not they need more than 10 per cent as a deposit. For more information, view Cancellation fees.
We recommend businesses have written agreements with their customers. It 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.
A cancellation policy should spell out what happens if the business or the customer cancels a booking.
When the contract cannot be performed
A crisis such as a bushfire may lead some guests to postpone or cancel their visit. For example, if a Code Red fire danger rating is issued, the area in which the business is located is not safe to enter. For more information, visit the Total fire bans and ratings - CFA website.
The business’ rights and obligations will depend on the situation. Both are released from the contract if, for example:
- the accommodation has been destroyed
- access roads have been closed
- the authorities have advised that the area is not safe to enter.
There may also be other circumstances in which the business operators or the customers are required to leave an area, or are prevented from entering.
In case of bushfire, it is also important for tourism businesses to have a written plan advising customers about what to do in such circumstances. This will minimise risks and may save lives in an emergency.
Preparing for such an emergency will also help to minimise a business’ losses and get it back up and running quickly after the fire threat has passed. To download a copy of the Tourism Business Fire Ready Kit, visit the Preparing your tourism business - CFA website.
Generally, a guest is not entitled to a refund due to poor weather, as this would be unlikely to frustrate performance of the contract and prevent the booking from going ahead. For example, a business cannot be held responsible for external environmental conditions outside its control such as:
- no snow on a ski trip
- rain during a weekend getaway at the beach
- colder weather than expected on a summer camping expedition.
Sometimes, however, weather conditions may be integral to the nature of the service being provided and determine whether a contract can be performed. Tourism businesses may wish to address these situations through a specific contractual term or condition, as previously described. Keep in mind that any rights arising as a result of a potentially frustrated contract should not be limited by this term or condition.
Other cancellation rights
Guests also have certain rights in the form of consumer guarantees that apply automatically under the ACL. Essentially, accommodation must be fit for any purpose specified by the customer. 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 fixed easily or within a reasonable time.
If a business also makes claims about accommodation that it cannot fulfil - for example, if it does not live up to any representations made about it - it is an offence under the ACL and the business may face penalties for misleading or deceptive conduct. The guest may also have access to a range of other remedies under the ACL.
A business’ ability to claim cancellation costs from a customer depends on certain factors. If it charges a cancellation fee, booking fee or administrative charge, the fee should not be excessive otherwise it may be regarded as an unfair contract term. Businesses 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 a deposit, then cancels the booking without a good reason (for example, if they just change their mind), the business 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 the 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 the business may have incurred before the booking was cancelled.
Before applying a cancellation policy, tourism businesses should 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, the business should make reasonable efforts. If another guest books the accommodation for the same price, it may be difficult for the business to argue that it has the right to impose a cancellation fee, except for costs already incurred.
If the contract allows the business to reclaim losses from a customer, without taking reasonable steps to avoid them, it may be deemed unfair under the ACL. This could include any terms that allow the business to claim the total cost of accommodation from a guest regardless of when they cancel the booking.
Deducting cancellation fees from credit cards
If a business records credit card details when confirming a booking by phone, it should advise customers at the time that their card will be charged if they cancel – and ensure they accept that condition. Otherwise, it may be considered an unauthorised transaction under the Australian Securities and Investment Commission’s ePayments Code. To be safe, reservations staff should be given a script to follow.
By issuing a written confirmation, businesses can also prove to the credit card company that they met their conditions.
When the business cancels
Businesses will be in breach of contract if they cancel a booking they have already accepted, unless they are legally permitted to do so (for example, under a valid term of the contract or if performance of the contract is frustrated as described earlier).
The customer may be entitled to claim damages from the business as compensation for any loss they suffer as a result of the business’ actions.
It is always better to find an outcome that satisfies both business and customer, without expensive legal processes.
If the customer is entitled to a refund, a business cannot insist that they accept a credit note. For example, this would be where the accommodation does not meet the consumer guarantee of fitness for purpose or any services have not been provided with due care and skill, and the problem with the services is major or cannot be fixed easily or within a reasonable time.
If the guarantees have been met, and a credit note is appropriate under the circumstances, the business will need to decide:
- the validity period of the credit note
- if it is transferable
- if it can be used for other services
- any other special conditions
- how to account financially for new bookings that extend into a new financial year.
The customer may be willing to postpone their visit. Tourism businesses should have a clear policy about what happens if the:
- new date is in high season and more expensive
- customer makes repeated requests for different dates
- customer’s booking is associated with a function - for example, a wedding - to be held on or near your business premises.
If the business is part of a group, such as a motel chain, it might offer an alternative to the customer that meets their needs. A hotel chain may be able to offer rooms in a different location; a resort could offer a different venue for a function. Businesses should ensure they are offering a good alternative, so the customers feel that they are getting a good service and not being ‘shunted around’ or penalised.
Remember that, in some instances, a customer may be entitled to a refund as it may not be appropriate to transfer or postpone their booking.