A lay-by agreement exists when you:

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

Any deposit you pay is also considered to be an instalment. For example, ordering a Christmas hamper in advance and agreeing to pay for it by weekly instalments is a lay-by agreement.

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Lay-by agreements must be in writing and must specify all the terms and conditions, including any termination charge.  The trader must give you a copy of the lay-by agreement.

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The trader may charge a termination fee if you decide to cancel a lay-by agreement (unless the trader has breached the lay-by agreement).  The amount of the fee must not be more the trader’s ‘reasonable costs’ relating to the agreement.

For example, if you lay-by a winter coat in June but decide to cancel the agreement in August, it may 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 trader must refund all amounts you have paid, except for the termination charge.   If the lay-by payments paid do not cover the termination charge, the trader can recover the outstanding amount as a debt.

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A trader must not cancel a lay-by agreement unless:

• you have breached a term of the agreement (such as missing a scheduled payment);
• they are no longer trading; or
• the goods are no longer available due to circumstances outside the trader’s control.

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Jeremy had a pair of shoes on lay-by for three weeks. He decided to cancel the lay-by because he had seen another pair of shoes that he preferred in a competitor's store. He approached the shop's manager, asking for a complete refund of the money he had paid so far. The manager told Jeremy that he could only have a part refund because he would be charged a fee for cancelling the lay-by.

Jeremy took the matter to NSW Fair Trading where it was revealed that the retailer had disclosed the cancellation fee to Jeremy at the beginning of the lay-by (on the lay-by statement).

Jeremy was informed that because he had been provided with this information up-front, he was entitled to only a part refund.

 Listen to information on Lay-bys (2:37 mins)

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