Unfair Contract Terms & Cancellation Fees Explained
Unfair contract terms, including excessive cancellation fees, can be unenforceable. Learn how these regulations impact businesses and consumers. 6 min read updated on March 12, 2025
Key Takeaways:
- Unfair contract terms are those that create an imbalance between the contracting parties, placing consumers or businesses at a disadvantage.
- Unfair cancellation fees must be proportionate to actual losses incurred; otherwise, they may be deemed unenforceable.
- Advance payments and deposits must be handled fairly, ensuring refunds are available in reasonable situations.
- Excessive penalties for contract breaches or cancellations are likely to be considered unfair.
- Amendment rights should be limited and clear; blanket rights allowing unilateral contract changes are often unfair.
- Subscription auto-renewals should provide clear notice and allow easy cancellation.
- Legal precedent shows that hidden or excessive cancellation fees are often ruled unenforceable.
Unfair contract terms regulations can create significant problems for contracting parties by limiting their rights and putting them in a disadvantaged position. These regulations may apply to many aspects of a contract, from payment to cancellation. However, businesses and consumers can take certain measures to stay compliant while ensuring that their rights are protected.
What Are Unfair Contract Terms Regulations?
In a consumer contract or notice, a term is considered unfair if it results in a significant imbalance in the contracting parties' rights, detriment to consumers, and a situation contrary to good faith. According to the Consumer Rights Act (CRA), some terms are automatically regarded as unfair or blacklisted, while others are potentially unfair or grey-listed.
The Competition and Markets Authority (CMA) has recently published a series of guidance notes on unfair contract terms. Such guides complement previously published guidance notes and provide valuable advice for small businesses. They cover a wide range of issues in a contract, including:
- Advance payments, deposits, and cancellations.
- Excessive charges and unfair sanctions.
- Contract cancellation.
- Responsibility when things go wrong.
- Amendment of contractual terms.
- Subscriptions and automatic rollover.
- Other potentially unfair terms.
Advance Payments and Deposits
In general, deposits in themselves are not unfair, but the way businesses handle deposits when their customers cancel can be unfair. If a customer makes a substantial deposit, refusing to refund the deposit regardless of the reason for canceling may be considered an unfair practice.
Excessive Charges and Unfair Sanctions
Any term that imposes disproportionately high or excessive charges for contract breach or cancellation is likely to be considered unfair. However, a customer may also be liable for the financial loss a business incurs due to the breach, but the amount must be reasonable in relation to the actual loss. A business needs to be upfront about charges, explaining how they are determined and when they should be paid.
Are Unfair Cancellation Fees Enforceable?
Unfair cancellation fees are often challenged in court, particularly when they are:
- Disproportionate – Fees exceeding the actual cost incurred by the business.
- Unclear – Terms that do not explicitly state the cancellation policy.
- Hidden – Fees buried in fine print without clear disclosure.
For a cancellation fee to be enforceable, businesses must:
- Clearly highlight cancellation fees in their contract terms.
- Demonstrate how the fee is calculated based on actual costs.
- Offer a reasonable and accessible cancellation process.
Customers who believe they have been subjected to an unfair cancellation fee may contest it through dispute resolution or legal action.
Contract Cancellation
In a long-term contract, not allowing the customer to cancel or requiring him or her to provide notification of his or her cancellation too far in advance may be regarded as unfair. Unfair contract terms pertaining to cancellation not only apply to the cancellation rights of a customer but also those of a business.
When reviewing its cancellation rights, a business should consider what it is offering its customers and how it can be potentially affected by any cancellation. If a business needs to cancel a contract as a result of a product recall issue, it may have the right to cancel if it refunds its customers. Nonetheless, canceling a contract without a good reason may be deemed unfair, especially if it can have a significant effect on the customer.
Legal Precedents on Unfair Cancellation Fees
Legal rulings have increasingly found that unfair cancellation fees are unenforceable if they are excessive, undisclosed, or not justified by actual losses. A key case, Blu-Sky Solutions Ltd v Be Caring Ltd, ruled that an undisclosed cancellation fee within standard terms and conditions was "onerous and unfair" because it was not clearly highlighted to the customer.
Courts generally assess cancellation fees based on:
- Transparency – Was the fee explicitly communicated before the contract was signed?
- Proportionality – Is the fee in line with actual financial losses suffered?
- Reasonableness – Would an average customer expect this term in the contract?
Businesses should ensure that cancellation clauses are fair, well-explained, and proportionate to avoid disputes.
Responsibility When Things Go Wrong
According to the CRA, consumers can benefit from certain standards enshrined as statutory rights, such as products being fit for purpose and of satisfactory quality. Any term that attempts to exclude these rights or liability for personal injury or death as a result of a business' wrongful acts will automatically be considered unenforceable. It is also not uncommon for businesses to exclude liability for things that can potentially go wrong, but they only have the right to do so if it is not unfair.
Consumer Protection Against Unfair Terms
Under the Consumer Rights Act (CRA), businesses cannot include terms that:
- Limit their liability for providing defective goods or services.
- Allow them to change essential terms without customer consent.
- Prevent consumers from seeking legal recourse.
If a consumer faces an unfair contract term, they can:
- Report it to the Competition and Markets Authority (CMA) for investigation.
- Seek redress through small claims court for unfair financial losses.
- Consult a legal expert to determine the enforceability of the contract.
Businesses should regularly review their contracts to ensure compliance with consumer protection laws.
Amendment of Contractual Terms
Blanket rights to amend the terms of a contract may be considered unfair. This may involve amending specific terms such as the price, delivery, or description of the product, but it may also include the right to amend terms at any time without permission from the customer.
Avoiding Unfair Business Practices in Contracts
To ensure compliance with unfair contract terms regulations, businesses should:
- Use clear and simple language to describe contractual obligations.
- Avoid vague terms that could be interpreted against consumer interests.
- Provide a fair cancellation policy with reasonable notice and refund options.
By proactively ensuring fairness, businesses reduce the risk of disputes and regulatory scrutiny.
Subscriptions and Automatic Rollover
A business that offers subscription service or other long-term rolling type of agreements, such as insurance contracts or mobile phone contracts, should clarify how subscriptions should be renewed, offer renewal reminders, and enable its customers to cancel their subscriptions without paying cancellation fees or giving cancelation notices far in advance.
Other Potentially Unfair Terms
The CMA has also listed several potentially unfair provisions, including:
- Terms permitting a business to determine disputes.
- Terms preventing customers to file claims in courts.
- Terms stating that a business will not be responsible for its sales representatives' statements.
- Terms imposing excessive requirements or burdens on customers.
Frequently Asked Questions
-
What makes a cancellation fee unfair?
A cancellation fee is unfair if it is excessive, undisclosed, or disproportionate to the actual loss suffered by the business. -
Can a business refuse to refund a deposit?
A business may withhold a deposit if the contract justifies it, but refusing a refund in all cases—especially when no loss was incurred—can be considered unfair. -
Are subscription auto-renewals legal?
Yes, but they must be clearly disclosed, and consumers should be able to cancel easily without excessive notice periods or fees. -
How can I dispute an unfair cancellation fee?
Consumers can challenge unfair fees by negotiating with the business, filing a complaint with consumer protection authorities, or taking legal action. -
Can businesses change contract terms without notice?
Only if the contract explicitly allows it and provides a fair reason. Otherwise, unilateral changes may be unenforceable under consumer protection laws.
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