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Hello, thank you for your question.
My name is XXXXX XXXXX I can assist you with this.
Did you agree that there would be a refund of the deposit in any particular circumstances?
Okay. And the purpose of the deposit was what exactly?
Sorry Tony, looks like my last reply did not post. Here is is again:
The client hired my company to design and build a website. The payment terms we agreed were 50% deposit and 50% on completion. Once the deposit is paid, I book out the time to that clients project. At that point, we turn away work because that time is already booked out.
This particular client accepted the estimate (which included the payment terms), paid the invoice for the 50% deposit. Then a couple of days before the agreed start date pulled the project. 4 months later, he got in touch wanting a refund.
Here is how I described the purpose of the deposit to the client: "Once deposit has been paid, the project will be booked into our production schedule. A full project plan (with deliverables and milestones) will then be created in Basecamp (a website we use for project collaboration)."
And the payment terms: " 50% deposit (non refundable), 50% upon completion of project. Payment due within 10 days."
The project plan was created, and the client had access to Basecamp. So in my mind not only was the project booked into our schedule, but because we had created the project plan in Basecamp, there project has in fact started when he decided to cancel. So my earlier statement about cancelling before the agreed start date is incorrect, he cancelled before our first project meeting.
Hope that helps!
Any update on this?
Hello, sorry about the delay.
If you give somebody permission to cancel, but forfeit the deposit as a consequence, then that is perfectly permissible and you are therefore allowed to retain the deposit.
There is a slightly different scenario if, however, you say that you will retain the deposit in the event of a breach-of-contract (i.e. they are not allowed to cancel, but do so anyway).
In this latter case, the amount that you retain must be a genuine pre-estimate of the loss that you are likely to sustain on-the-job as a consequence of the breach of agreement. Therefore, you refer to work being booked into the diary, and your refusal of other work may mean that this does amount to a genuine pre-estimate the loss that you are likely to sustain. Each case turns on its own facts in this sense, but the clause will only be enforceable (i.e. you will only be entitled to retain the deposit) in the event of a breach where it is a genuine pre-estimate of loss.
If the amount you retain is much greater than any loss you would ever likely sustained, then it will be unenforceable in a breach-of-contract scenario, as it would be called a penalty clause.
You can find more information on penalty clauses here: http://www.shoosmiths.co.uk/client-resources/legal-updates/Penalty-clauses-liquidated-damages-Traps-for-unwary-4897.aspx
Do have a look at that, and if you wish to ask any questions, please feel free. I'm not always online, but I will answer you as soon as I possibly can.