A lay-by is the supply of goods ordinarily used for personal, household or domestic purposes on terms (express or implied) which provide that:

• The goods will not be delivered to or be available for collection by the customer until the whole of the price is paid; and
• The price is to be paid by 3 or more payments.

Lay-by laws were amended in Victoria in 1999, with some other States following suit. However, I recommend that you check with your industry association for specifics in your State.

From a Victorian perspective:

• ALL lay-by sales MUST be documented in the form of a contract/agreement.
• Retailers can charge a cancellation fee if the customer cancels the lay-by.
• The conditions under which either a customer or a retailer can cancel a lay-by are clearly documented.
• ALL lay-by sales must take the form of a contract or agreement, signed by both the customer and the retailer.
• The terms and conditions must be shown on the customer’s copy of the contract or agreement.

The contract/agreement must:

• Carry a description of the goods including brand name and/or model number or serial number (where applicable).
• Show the full purchase price of the goods.
• Show the first payment made (deposit) and the balance outstanding.
• Show when further payments will fall due (weekly/fortnightly/monthly etc).
• Show the date when the final payment is due.
• Indicate if any charge is payable under the agreement for the cancellation of the lay-by.
• The amount of the cancellation charge (percentage or fixed amount).
• The method of calculating the charge.
• Be signed by the customer AFTER the retailer has invited the customer to READ THOROUGHLY the terms and conditions.
• Be signed by the retailer or a person acting on behalf of the retailer (ie. an employee of the retailer).
• The customers MUST be given a copy of the signed contract/agreement at the time the contract/agreement is entered into.
• The retailer should ensure that the customer CLEARLY understands English prior to signing the contract/agreement.

The Terms and Conditions and the Purchase Price

The purchase price of the goods on lay-by can’t change during the period of the contract/agreement.

None of the terms and conditions can be changed during the period of the lay-by without the customer’s agreement in writing.

The Lay-By Period

The period of the lay-by should be CLEARLY defined on the contract/agreement.  It is recommended a period of 6-8 weeks, however retailers are free to set their own time limits in line with store requirements.

Amounts of Payments

The terms of payment should be clearly defined, ie. weekly, fortnightly or monthly payments.  Retailer’s can’t demand early payment of the lay-by.

What is a reasonable deposit?

It is generally recommended that the deposit should be 20% of the price of the article or the total price of the articles covered on the lay-by.

In most cases:

10% is unreasonably small

A 30% deposit is unreasonably high

More Than One Item

If a customer requires more than one item to be placed on lay-by, the retailer must clearly identify each item on the contract/agreement.  The items should then be treated as one lay-by, should not be separated and MUST be paid for in full before collection by the customer.

Record of Payment

A record must be kept by the store of each instalment paid by the customer.  A receipt should be issued for each payment made.

Cancellation Charge

The cancellation charge is to be a reasonable amount being not more than the amount to reimburse the retailer for reasonable selling costs (including storage and administration costs) and loss of value of the goods (if any) as a result of the cancellation.

What is a reasonable cancellation charge?

It is generally recommended that the amount of the cancellation charge should be equal to the amount of the deposit paid.

In most cases:

A 10% cancellation charge is too small

A 30% cancellation charge is too high

When Can A Customer Cancel a Lay-by?

A customer can cancel a lay-by at any time prior to delivery of goods or on delivery of the goods if the goods are damaged.

The retailer must, if requested by the customer, give the customer a “statement of cancellation.”

When Can a Retailer Cancel a Lay-by?

A retailer MUST NOT cancel a lay-by unless:

• The customer breaches the terms and conditions of the lay-by
• The retailer stops trading
• The goods are no longer available

Is Written Notice Required?

A retailer MUST provide 14 days written notice to a customer if he/she intends to cancel the lay-by due to breach of terms and conditions by the customer.  The notice must allow the customer 14 days to rectify the breach, and must be sent to the customer’s last known address.

Gone … no address?

If a retailer writes to a customer and the letter is returned undelivered, the retailer can be deemed after 14 days to have provided notice to the customer.  The lay-by can be cancelled and the monies paid (less cancellation fee) can be refunded to the customer.

Still Undeliverable?

If a retailer forwards a refund cheque to a customer by mail, and the envelope is returned undelivered the retailer can be deemed to have fulfilled their responsibilities under the lay-by.  After 6 months the retailer’s refund cheque to the customer can be cancelled.

What if the Retailer Doesn’t Issue a Contract/Agreement?

The retailer will be unable to legally enforce any cancellation charge if the lay-by is cancelled.

The customer will be able to waste the retailer’s time and resources with impunity.  The retailer may be liable to prosecution and finds of up to $12,000 for breaching the Fair Trading Act.

Isn’t the Issue of a Contract/Agreement Time-Consuming?

Perhaps, but it is still a requirement under the law.

Most computerised Point of Sale systems have the ability to add a lay-by contract/agreement.  If you don’t have this facility, contact your POS supplier.

FAQ’s

What is a reasonable time-span after breach of terms and conditions by a customer before cancelling the lay-by?

The retailer can cancel the lay-by at any time AFTER having given 14 days notice in writing to the customer of breach of terms and conditions and intention to cancel the lay-by.

If mail to the customer continues to be returned undelivered can I assume the customer has left the area?

Yes, however it must be understood that many, many months later the customer may return and request a refund of monies paid.