Guidance

Statement on coronavirus (COVID-19), consumer contracts, cancellation and refunds

Updated 28 August 2020

Introduction

This statement should not be regarded as a substitute for, or a definitive interpretation of, the law. Rather it sets out the CMA’s views as to how the law operates, to help consumers understand their rights and to help businesses treat their customers fairly. Ultimately only a court can decide how the law applies in each circumstance.

The CMA cannot provide individual advice.

Consumers can contact Citizens Advice for support, and business can visit the Business Companion for further guidance.

Some important concepts,including about the law of frustration, are set out in the glossary of technical terms.

Laws and guidance related to coronavirus

The UK government and the devolved administrations have introduced public health measures to restrict the spread of coronavirus.

Certain laws were introduced at the start of the pandemic and created legal restrictions on certain activities. We refer to these as ‘lockdown laws’.

Further laws have been introduced subsequently for example, the requirement to self-isolate when returning to the UK from certain countries, as well as lockdown laws that only apply to specific areas of the country or to specific activities (‘local lockdowns’).

Some legal restrictions have now been lifted, and the government has issued guidance about what people should do in place of or in addition to some lockdown laws.

Unlike lockdown laws, compliance with government guidance is not legally binding.

It is important for businesses and consumers to follow government guidance to help stop the spread of the coronavirus, and for businesses to treat consumers, including those following government guidance, fairly and responsibly.

Businesses that mislead consumers about the effects of lockdown laws or guidance, or put pressure on consumers not to comply with them, may infringe consumer protection law.

Further information on consumer protection law can be found on the consumer protection pages on GOV.UK.

More information on government public health measures and their status is available on the government coronavirus collection page.

Application of general legal principles

The law does not specifically set out the consequences of the coronavirus for contracts. Usual legal principles will therefore apply. In addition, consumer protection law ensures that consumers’ legal rights (for example those which might apply under the usual legal principles) are protected and that businesses treat consumers fairly in all their dealings with them.

The legal position was more straightforward under the original lockdown laws, imposed at the start of the pandemic, because the broad and strict nature of the legal restrictions they imposed meant many contracts could not go ahead as planned.

However, as lockdown laws and the nature of the legal restrictions they impose change over time, the consequences for individual contracts may become less clear-cut and more fact-specific. Ultimately only a court can decide how the law applies, and in many cases this will be the first time the issues have been considered in the context of a pandemic like this.

Consumers and businesses should be aware that whether or not a consumer is entitled to a refund will depend on the nature of the goods or services in question, the sector, the detail of the arrangements that have been entered into (including the terms and conditions of any contract) and the impact of the coronavirus pandemic and any restrictions on the arrangement.

Contracts that cannot go ahead due to lockdown laws

In some circumstances, due to lockdown laws, a contract cannot go ahead as agreed or at all, and is therefore ‘frustrated’. A contract will be frustrated as a matter of law if, due to no fault of the parties, something happens after the contract was entered into which means it can no longer be performed at all or performance would be radically different to what was agreed.

As a result, the contract comes to an end and, where consumers have paid money in advance for services or goods that they have yet to receive, they will generally be entitled to obtain a refund.

They will also not be required to make further payments.

In particular, for most consumer contracts, the CMA would expect a consumer to be offered a full refund where:

• a business has cancelled a contract without providing any of the promised goods or services
• no goods or services are provided by a business because this is prevented by the lockdown laws
• a consumer is prevented from receiving any goods or services, because, for example, lockdown laws in the UK or abroad have made it illegal to receive or use the goods or services

In most cases, consumers will contact a business to ask for their money back, but there is no requirement for consumers formally to communicate with a business before becoming entitled to a refund.

Examples of legal restrictions in lockdown laws include:

• restrictions imposed under the original lockdown laws in the early stages of the pandemic
• restrictions imposed by local lockdown laws
• specific restrictions imposed by local authorities under their legal lockdown powers
• mandatory self-isolation following a direction from a public health officer
• mandatory self-isolation when returning to the UK from certain countries which may affect the consumer’s ability to use a service during the self-isolation period (provided that the requirement to self-isolate was imposed after the consumer had entered into the relevant contract and was not reasonably anticipated by the consumer)

If laws in another country prevent a business from providing a service under a contract with a UK consumer or prevent that consumer from receiving the service, then in most cases consumers will also be entitled to a refund.

Businesses should not require consumers to take unreasonable or unnecessary steps in order to obtain refunds. A business imposing such barriers may breach consumer protection law by doing so.

Limited exceptions to full refunds

Sometimes, a consumer will already have received some of the services they have paid for in advance.

In those cases, the CMA considers that the consumer would normally be entitled to at least a refund for the services that are not provided.

However, where they have already received something of value, consumers should generally be expected to pay for it and they will not usually be entitled to get all their money back.

In some cases, where lockdown laws prevent a business from providing a service or the consumer from receiving it, the business may be able to deduct a contribution to the costs it has already incurred in relation to the specific contract in question (where it cannot recover them elsewhere).

In the CMA’s view, these cases are likely to be relatively rare and the costs that may be deducted from refunds will usually be limited. However, the ability to make a deduction, and its amount, will depend on the circumstances, including the sector and the nature of the service being provided. Ultimately only a court can decide how the law applies to specific contracts and circumstances.

Ongoing contracts

Where a consumer receives regular services in exchange for a regular payment as part of an ongoing contract, the CMA considers that:

• consumers will normally be entitled to a refund for any services they have already paid for but that are not provided by the business or which the consumer is not allowed to use because of lockdown laws (this may be a partial refund of the total amount the consumer has already paid, to reflect the value of the services already provided)
• consumers will normally be entitled to withhold payment for services that are not provided by the business or which the consumer is not allowed to use because of lockdown laws
• a business may be able to require the consumer to make a small contribution to its costs until the provision of the service is resumed, but only where the contract terms set this out clearly and fairly and the consumer is free to end the contract if they do not wish to pay these fees

Consumers should be treated fairly by businesses, and not misled about their rights. The CMA is unlikely to object to the parties seeking to reach an arrangement that is mutually acceptable in the circumstances, provided that consumers are not left in a worse position where they have sought to find a resolution in this way.

Non-refundable payments and fees

In the CMA’s view, for consumer contracts the above rights to a refund will usually apply even where the business says part of the payment is a non-refundable deposit or advance payment.

This is because the contract will have been frustrated and terms which allow a business to provide no service but keep a consumer’s money (including deposits or advance payments) are likely to be unfair, and therefore unenforceable under Part 2 of the Consumer Rights Act 2015.

Find out more about fair contract terms on the CMA fair business terms campaign page.

The CMA considers that businesses should not charge any form of administration fee (or equivalent) for processing refunds in the above circumstances.

Credits and re-booking

Consumers can normally be offered credits, vouchers, re-booking or re-scheduling as an alternative to a refund, but they should not be misled or pressured into doing so. A refund should still be an option that is just as clearly and easily available.

In particular, businesses should not give consumers the impression that they are not entitled to a cash refund where that is their legal right, and in the CMA’s view this would be likely to breach consumer protection law.

Any restrictions that apply to credits, vouchers, re-booking or re-scheduling must also be fair and made clear to consumers.

Timing of refunds

The CMA accepts that, in the initial stages of the pandemic, it may have taken businesses longer than normal to process refunds.

However, the timeframes for providing refunds should be made clear to consumers and refunds should be given promptly and without undue delay.

The CMA notes that statutory deadlines for payment also apply in certain situations.

Payments for future services

Some contracts may require consumers to pay now for services that they will receive in the future.

A business should not seek payments for a service it knows it will be unable to provide.

This is likely to be the case where current lockdown laws would prevent the contract from being performed and those laws are still likely to be in place at the time that the contract is due to be performed.

Where lockdown laws make it reasonably likely that the contract will not be able to be performed at the time agreed, it is likely that the contract will be ’frustrated’ under the law at the point this becomes clear. As a result the contract will come to an end and consumers should be entitled to receive a refund.

For more information, see the glossary of technical terms.

As lockdown laws might change in the future, consumers may be willing to reach a voluntary agreement with a business to wait and see whether a service might actually be able to go ahead.

However, they are not required to do so, and should not be misled or put under pressure to reach such an agreement.

It is also important that consumers should not be left worse off if they do so.

Where it is reasonably likely that the business will be able to provide the service as agreed, the CMA’s view is that, in general, the business can require consumers to carry on making contractual payments in advance of performance. This is likely to be the case where no relevant lockdown laws currently apply, or any relevant lockdown laws are likely to have been lifted by the relevant time (for example where the law sets out the date when the restrictions will end).

Consumers’ rights to refunds will depend on whether the services can be provided when the business is due to perform the contract, unless the contract has been ended before this.

Contracts that are partially affected by lockdown laws

As some legal restrictions under the lockdown laws are lifted or eased, it may be the case that a business is no longer completely prevented from providing any of the services it agreed to provide. The CMA’s view is that if the service that can be provided would be radically different to what was agreed, for example, because lockdown laws or other restrictions would prevent key parts of the contract from being performed, then in most cases consumers should be entitled to a refund.

If the service can be provided with only minor differences from what was agreed, then in most cases the contract can continue and a consumer would be entitled, at most, to an appropriate price reduction in relation to those parts of the service which were not provided (or were not provided as agreed).

Any cancellation rights which the consumer has under the applicable terms and conditions still apply.

The CMA is unlikely to object if consumers and businesses seek to find a solution that is mutually acceptable, and it is important that businesses treat these consumers fairly and responsibly.

Consumers should not be left in a worse position where they have sought to find a resolution in this way.

Changing terms in existing contracts during the pandemic

Some contracts contain terms which give a business the right to change elements (terms) of the contract after it has been agreed with the consumer.

These are known as ‘variation clauses’. Businesses might try to use these to change the terms of contracts and ensure they cover issues arising from the coronavirus pandemic.

Variation clauses are likely to be unfair and unenforceable under Part 2 of the Consumer Rights Act 2015 if:

• they have the effect of a ‘blank cheque’ allowing a business to adjust important aspects of the contract at will
• the business is not required to give the consumer reasonable notice of any changes
• the consumer does not have a right to freely cancel the contract without being left worse off

More information is available in the CMA’s guidance on variation clauses.

The CMA is unlikely to object to voluntary arrangements entered into between businesses and consumers provided they are fairly agreed, and the business does not pressurise or mislead the consumer in any way to accept the new arrangement.

Consumers should also not be left in a worse position where they have sought to find a resolution in this way.

Terms in new contracts which relate to the coronavirus

Businesses may be planning to redraft their standard terms and conditions to include specific provisions relating to the coronavirus in contracts with new customers.

Whilst each case will depend on the circumstances and the specific terms used in the contract, the CMA considers terms are likely to be unfair and therefore unenforceable if they prevent consumers from obtaining a refund in circumstances where lockdown laws mean that a contract cannot be performed as agreed.

Any terms and conditions relating to refunds and the coronavirus, as well as provisions relating to cancellation and refunds more generally, must also be clearly and prominently set out in the contract.

They must be appropriately and clearly brought to the consumer’s attention before they enter into the contract.

Such terms are more likely to be fair and enforceable where they:

• put strict and narrow limits on the circumstances in which consumers’ rights to refunds are reduced
• allow consumers to get most of their money back and only allow the business to withhold a limited amount for any costs it has already incurred in performing the specific contract

More information is available in the CMA general guidance on unfair contract terms and guidance for businesses on how to write fair contracts.

Cancellation relating to government guidance

Where a service can legally be provided as agreed, but a business or consumer does not want to go ahead with the arrangement, for example because of government guidance, then the position is more legally complex.

The circumstances of each case will have to be carefully considered.

Examples of current government guidance are:

• Foreign and Commonwealth Office (FCO) travel advice
• self-isolation after contact by NHS test and trace

In some circumstances, there may be special rules which could mean consumers are entitled to a full refund, for example with package holidays.

If a package holiday could be cancelled in light of FCO advice against travel to the relevant country (due to unavoidable and extraordinary circumstances, as set out in The Package Travel and Linked Travel Arrangements Regulations 2018) then consumers should be entitled to a full refund.

In other cases, because government guidance does not contain legal restrictions, it is not clear whether a contract would be considered to have been legally ‘frustrated’ (which would generally entitle the consumer to a full refund)

If a contract has not been frustrated, then any applicable pre-existing terms and conditions on cancellation and refunds will apply (as long as they are fair).

However, it is important to note that whether a contract has been frustrated will depend on the circumstances. Although frustration is less likely where there are no legal restrictions in place, it is not impossible. If advice or guidance means a consumer would be at serious risk if the contract went ahead as agreed, it is possible a court might find that the contract had been frustrated.

If a contract has not been frustrated, then any applicable pre-existing terms and conditions on cancellation and refunds will apply (as long as they are fair).

In any event, the CMA takes the view that businesses should treat consumers fairly and responsibly in these circumstances and this may include trying to find a mutually acceptable solution.

Otherwise the consumer will be entitled to cancel and seek a refund in line with the applicable pre-existing terms and conditions, provided that those terms and conditions are fair.

Cancellation under the standard terms and conditions

Sometimes contracts have terms which say how consumers can cancel the contract early and what the consequences of early cancellation are. It is important that these terms are fair.

Terms which allow a business to cancel a contract without providing any of the promised goods or services but keep all or most of a consumer’s money are likely to be unfair and unenforceable.

Where a business cancels a contract because of government guidance without providing any services, the consumer should generally be entitled to get all their money back.

Where a consumer cancels a contract, for example in response to government guidance, they should not face disproportionately high charges for doing so, and it is important that businesses respect government guidance and treat consumers who cancel because of it fairly.

Terms which say no refund is available in any circumstances, or that a consumer must pay in full if they cancel early – without taking into account any savings to the business for not having to provide the service or being able to sell to another customer – are likely to be unfair.

The CMA considers that any money that a business can keep under the contract must reflect what it is actually losing as a result of the cancellation and must not be excessive. The contract must also set out clearly how the cancellation charge will be calculated.

The CMA considers that in most cases, in order to be fair:

• non-refundable deposits should only be a small percentage of the total price
• advance payments for future services should usually be refunded (and any deductions should be limited to those costs that a business has already reasonably incurred in connection with that contract)
• cancellation charges should be limited to a genuine estimate of what a business will lose directly
• businesses should not be compensated twice for the same loss (e.g. by retaining some advance payments and imposing a cancellation charge)

Unfair terms are not binding and are not enforceable.

More information is available in the CMA’s guidance on deposits, advance payments and cancellation charges.

Complying with government guidance is a very important part of stopping the spread of the coronavirus, and consumers should not be unfairly treated for doing so.

Where contracts are affected by government guidance, wherever possible, businesses should work with consumers to find solutions which work for both parties.

Where a business puts pressure on consumers not to follow government guidance this could be an unfair, and unlawful practice.

Other available materials

If consumers have questions relating to the operation of an insurance policy, the Financial Conduct Authority (FCA) has published information about getting a refund and claiming on insurance

If consumers have questions regarding package travel, the Association of British Travel Agents (ABTA) has published advice for consumers.

In respect of air travel, the Civil Aviation Authority (CAA) has published COVID-19 guidance for passengers

The CMA has established a COVID-19 taskforce to identify, monitor and respond to consumer problems arising from coronavirus and the measures taken to contain it.

As part of its work the COVID-19 taskforce is publishing more detailed information for consumers and businesses in relation to sectors of specific concern. This can be found on the CMA COVID-19 collection page.

Glossary of technical terms

Lockdown laws

At the start of the pandemic, governments in the UK put in place similar legal restrictions designed to combat the spread of the virus in the UK:

• for England: The Health Protection (Coronavirus, Restrictions) (England) Regulations 2020
• for Wales: The Health Protection (Coronavirus, Restrictions) (Wales) Regulations 2020
• for Scotland: The Health Protection (Coronavirus) (Restrictions) (Scotland) Regulations 2020
• for Northern Ireland: The Health Protection (Coronavirus, Restrictions) Regulations (Northern Ireland) 2020

As the situation has developed the existing laws have changed and new laws have also been introduced (which may be different in each of the 4 nations and in particular areas).

This is a fast-moving area, and consumers and business should check which laws affect them and the contracts they have entered into, and whether the laws have been changed or replaced.

Visit the government’s coronavirus collection page for information on government public health measures and their status.

Frustration

A contract will be ‘frustrated’ as a matter of law if, due to no fault of the parties, something happens after the contract was entered into which means it can no longer be performed at all or performance would be radically different to what was agreed. As a result the contract comes to an end.

Other consequences of frustration, in particular what happens to money already paid under the contract, will depend on which of the 4 nations’ laws apply to the contract. Under English law for example, which applies in England and Wales, certain consequences of frustration are set out in the Law Reform (Frustrated Contracts) Act 1943. Under this legislation, parties to the contract are no longer liable to make any outstanding payments and they are entitled to get back anything they have already paid, subject to certain exceptions. In Northern Ireland the relevant legislation is the Frustrated Contracts Act (Northern Ireland) 1947. There is no equivalent legislation in Scotland, however similar consequences are likely to flow under the law of unjustified enrichment.

The ability to make deductions, and the amount, will depend on the circumstances, including the nature of the service being provided. Relatively few cases on such deductions have been considered by the courts.

Breach of contract

If a contract is not ‘frustrated’ but one party does not meet its contractual obligations in some way (for example by providing a different service to the one that was agreed) then they are likely to be in breach of contract. Depending on the seriousness of the breach, the other party may be entitled to continue with the contract and get a reduction in the price, or even to terminate the contract and get a refund. This will depend on the circumstances.

Consumer protection law

Legal principles such as frustration and breach of contract apply to contracts generally.

However, where a contract is between a business and a consumer then consumer protection law will apply as well.

Consumer protection law ensures that consumers’ legal rights (both those which might apply under the usual legal principles and any rights which apply specifically to consumers) are protected and that businesses treat consumers fairly in all their dealings with them.

In particular:

Part 2 of the Consumer Rights Act 2015 requires the terms in consumer contracts to be fair and, if written, transparent. Unfair terms are not enforceable against consumers

Read the CMA’s guidance on unfair contract terms.

The Consumer Protection from Unfair Trading Regulations 2008 prevent businesses from treating consumers unfairly

Read the CMA’s guidance on the Unfair Trading Regulations 2008.