What is a lay-by agreement?

A lay-by agreement is when a consumer:

  • pays for the goods in at least two or three instalments, and
  • does not receive the goods until the full price has been paid.

Any deposit the consumer pays 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.

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.

Contract requirements

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

Termination charge

You can charge a termination fee if the consumer decides to cancel a lay-by agreement, unless you’ve breached the agreement.  The amount of the fee must not be more than the ‘reasonable costs’ relating to the agreement and you should be prepared to justify the cost. For example, if a consumer lay-bys a winter coat in June but decides to cancel the agreement in August, it may be more difficult to sell the coat at the end of winter. The termination charge could take into account any need to discount the coat.

When a consumer cancels a lay-by agreement

You must refund all payments, except for the termination charge.  If the lay-by payments paid do not cover the termination charge, you can ask them to pay more.

Termination of lay-by agreements by suppliers

You cannot terminate a lay-by agreement unless:

  • the consumer has breached a term of the agreement (such as missing a scheduled payment)
  • You are no longer in business, or
  • the goods are no longer available due to circumstances outside of your control
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