An agreement is considered to be a lay-by if the consumer:

• pays for the goods in at least three instalments (when the agreement is not stated to be a lay by agreement) or in two instalments (when the agreement is called a lay-by agreement), and
• does not receive the goods until the full price has been paid.

Any deposit paid by the consumer is an instalment. For example, a consumer orders a Christmas hamper in advance and agrees to pay for it by weekly instalments. This is a lay-by agreement.

Lay-by agreements that are standard form contracts may be covered by unfair contract terms provisions in Part 2-3 of the Australian Consumer Law.

Lay-by agreements must be in writing and be transparent (expressed in plain language, legible and clearly presented).  The agreement must specify all terms and conditions, including any termination charge.

A copy of the lay-by agreement must be given to the consumer.

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The supplier may charge a termination fee if a consumer decides to cancel a lay-by agreement (unless the supplier has breached the lay-by agreement).

There is no set amount or percentage for a termination fee, but it must not be more than the supplier’s reasonable costs relating to the agreement. What is reasonable will depend on the circumstances, and suppliers should be prepared to justify their claims for reasonable costs.

For example, a consumer lay-by’s a winter coat in June but decides to cancel the agreement in August. It will be more difficult for the store to sell the coat at the end of winter. The termination charge could take into account any need to discount the coat.

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The supplier must refund all amounts paid by the consumer under the agreement, except for the termination charge.

If the consumer’s lay-by payments do not cover the termination charge, the supplier can recover the outstanding amount as a debt. However, the supplier is not entitled to damages or any other remedy.

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A supplier must not terminate a lay-by agreement unless:

• the consumer has breached a term of the agreement (such as missing a scheduled payment)
• the supplier is no longer engaged in trade or commerce, or
• the goods are no longer available due to circumstances outside the supplier’s control (not because the supplier decided to withdraw the goods from sale).

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