Can A Business Keep A Deposit In New Zealand?

Yes, your business can sometimes keep a customer's deposit in New Zealand, but only if your terms are clear, fair and properly brought to the customer's attention before they pay.

The more nuanced part is this: calling something a non-refundable deposit doesn't automatically mean you can keep all of it. If the amount is out of proportion to what you've actually lost, or your terms are unclear or misleading, the customer may have a strong argument for a refund.

This is especially relevant for service businesses, where clear service terms matter because a cancelled booking can leave you with an empty appointment, staff costs, materials ordered and admin time you can't get back.

Let's look at how deposits, booking fees and cancellation fees work in practice, and how to write your booking terms so they're more likely to hold up under New Zealand consumer and fair trading principles.

Can A Business Keep A Deposit In New Zealand?

Yes, you can usually keep a deposit if your customer agreed to that term before paying and the amount you keep is reasonable in the circumstances.

A deposit is usually an upfront payment that goes towards the total price. For example, if your bridal hair package costs $800 and you take a $200 deposit, that $200 is part-payment for the service.

The key questions are:

• Did the customer know the deposit was non-refundable, or refundable only in certain situations?
• Was the term easy to find and understand before they paid?
• Is the amount you're keeping a genuine reflection of your loss or the value of what you've already done?
• Did your business do anything that caused the cancellation, such as failing to provide the service properly?

If the answer to those questions is in your favour, you're in a much stronger position. If your terms were hidden in tiny text, added after payment, or the amount kept is very high compared with your actual loss, it becomes riskier.

New Zealand law doesn't give you a simple one-size-fits-all deposit rule. Instead, the answer usually comes from a mix of contract law, the Fair Trading Act 1986, the Consumer Guarantees Act 1993 and general principles around penalties and fairness.

What Is The Difference Between A Deposit, Booking Fee And Cancellation Fee?

The difference matters because each fee does a slightly different job, and your terms should use the right label.

Deposit

A deposit is usually part of the total price. It shows the customer is serious about booking and gives your business some protection if they cancel.

If you want it to be non-refundable, say so clearly before payment. Even then, you should be ready to explain why the amount is reasonable.

Booking Fee

A booking fee is usually charged for securing a spot, appointment, date or place. It may cover admin, payment processing, scheduling, onboarding or holding capacity for the customer.

A booking fee can be non-refundable if it genuinely relates to the work done to reserve the booking and your terms are clear. Problems can arise if you call something a booking fee but it's really just a large penalty for cancelling.

Cancellation Fee

A cancellation fee is usually charged when the customer cancels within a certain period, such as less than 48 hours before an appointment or less than 7 days before an event.

This can work well for service businesses because it links the fee to the practical impact of the cancellation. A last-minute cancellation is usually more costly than one made weeks in advance.

For example, Aroha runs a mobile beauty business in Wellington. She takes a $50 deposit for each bridal trial. If a customer cancels three weeks out, Aroha can probably fill the slot. If they cancel two hours before the appointment, she may have already travelled, prepared products and turned away another client. Her cancellation terms should reflect that difference.

Can You Make A Deposit Non-Refundable?

Yes, you can make a deposit non-refundable, but the term needs to be clear, fair and proportionate.

The safest approach is to avoid treating non-refundable as a magic phrase. Instead, explain what the deposit covers and when it will or won't be refunded.

For example, your terms might say the deposit covers:

• admin time spent confirming and preparing the booking
• time blocked out in your calendar
• materials, products or equipment ordered for the booking
• staff scheduling costs
• merchant fees or platform fees your business can't recover

If your customer simply changes their mind and your terms were clear, you may be able to keep the deposit. If your business cancels, can't deliver the service, or provides a service that fails to meet consumer guarantees, the position is different.

You should also be careful with very large deposits. A 10% or 20% deposit may be easier to justify in many service businesses than a 70% non-refundable deposit, but it depends on the nature of the service and your costs.

For example, a custom event stylist who orders personalised signage and flowers straight away may have stronger reasons for a larger non-refundable component than a standard appointment-based business that can easily rebook the slot.

What Does The Fair Trading Act Say About Cancellation Fees?

The Fair Trading Act doesn't ban cancellation fees, but it does mean your fees and terms must not be misleading, deceptive or unfair.

There are two main Fair Trading Act issues to watch.

Misleading Or Deceptive Conduct

You shouldn't say or imply that a fee is refundable if it isn't, or that a customer has agreed to a cancellation fee if they didn't actually see the term before booking.

Common problem areas include:

• advertising a price, then revealing a compulsory booking fee only at the final payment step
• calling a payment a deposit without saying it's non-refundable
• using vague wording like fees may apply without saying what the fee is or how it's calculated
• telling a customer they can never get a refund, even if your business was at fault

If you sell to consumers, your pricing and key terms should be upfront. If you're GST registered, make sure your consumer-facing prices are clear about whether GST is included. Hidden fees can create Fair Trading Act risk and can also lead to chargebacks, complaints and bad reviews.

Unfair Contract Terms

The Fair Trading Act also contains unfair contract term rules for standard form consumer contracts and standard form small trade contracts.

A term may be unfair if it creates a significant imbalance, isn't reasonably necessary to protect your legitimate business interests, and would cause detriment if relied on.

In practical terms, a cancellation term is more likely to be fair if it:

• is clearly disclosed before the customer books
• uses a reasonable amount or formula
• allows different outcomes depending on how much notice is given
• doesn't let your business keep money when you're the one who cancels or can't perform
• doesn't give your business unlimited discretion to decide what is refundable

A flat rule that says all payments are non-refundable in all circumstances can be risky, especially for consumer customers. It may be simpler to write, but it may not be the term you want to rely on later.

Does The Consumer Guarantees Act Affect Deposit Refunds?

Yes, the Consumer Guarantees Act can affect deposit refunds if the customer is cancelling because of a problem with your service.

For services supplied to consumers, the Consumer Guarantees Act 1993 requires that services are carried out with reasonable care and skill, are fit for the customer's disclosed purpose, and are completed within a reasonable time if no time is agreed.

If the customer cancels just because they've changed their mind, the Consumer Guarantees Act doesn't usually give them an automatic right to a refund.

But if your service has a problem, the customer's rights are different. For example:

• if the problem is minor, you may have the chance to fix it within a reasonable time
• if the problem is serious, the customer may be able to cancel and ask for a refund
• if you can't provide the service at all, you usually shouldn't keep money for work you haven't done unless your terms and the circumstances justify it

Say you run a photography business and take a $500 deposit for a family shoot. The customer cancels two days before because they changed their mind. If your terms clearly say the deposit is non-refundable within 7 days of the shoot, you may be able to keep it.

But if you cancel the shoot because you double-booked yourself, it's a different story. Keeping the full deposit would be difficult to justify, because the customer didn't cause the loss.

How Much Of A Deposit Or Cancellation Fee Can You Keep?

You can generally keep an amount that's reasonable for your actual loss, wasted costs and the value of work already done.

There isn't a fixed percentage that works for every business. The right amount depends on what you sell, how far in advance the customer cancels, and whether you can rebook the time or reuse the materials.

When setting your fee, think about:

• Notice: Was the cancellation made weeks out, days out, or at the last minute?
• Rebooking: Can you realistically fill the spot with another paying customer?
• Preparation: Have you already done planning, design, admin, consultation or setup work?
• Costs: Have you ordered materials, booked contractors or paid platform fees?
• Customisation: Is the service tailored to that customer, or can it be resold easily?
• Fault: Did the customer cancel for their own reasons, or because your business couldn't deliver?

A tiered cancellation structure is often easier to justify than a harsh all-or-nothing rule. For example:

• cancellations more than 14 days before the booking receive a refund minus a reasonable admin fee
• cancellations 7 to 14 days before the booking lose the deposit
• cancellations less than 48 hours before the booking pay a higher cancellation fee because the slot is unlikely to be filled

Those timeframes are examples only. A wedding supplier, business coach, personal trainer and home services provider may all need different rules. The key is choosing timeframes that match how your business actually loses money when someone cancels.

You should also reduce the amount you keep if you avoid or recover the loss. If you manage to rebook the slot with another customer, keeping the original customer's full payment may be harder to justify.

How Should Your Cancellation Fee Terms And Conditions Be Written?

Your customer contracts should tell the customer exactly what they're paying, when it can be kept, and what happens if either side cancels.

Good cancellation terms are practical, not just legal. They help customers understand the rules before they book, which makes awkward conversations much easier later.

What To Include

Your terms should cover:

• the amount of any deposit, booking fee or cancellation fee
• whether the amount is refundable, non-refundable or partly refundable
• the notice periods that apply to cancellations or rescheduling
• what happens if the customer doesn't show up
• what happens if your business needs to cancel or reschedule
• how refunds are processed and whether any third-party fees are deducted
• whether prices include GST, if that matters for your business
• any special rules for custom work, perishable products or event bookings

How To Get Customer Agreement

Your customer should accept the terms before they pay. This is where many businesses get caught out.

For online bookings, your online service terms might use:

• a checkbox saying the customer has read and accepted your terms
• a clear link to the terms next to the payment button
• a booking summary that repeats the key cancellation rule
• an automatic confirmation email with the same terms attached or set out clearly

For quotes, proposals or invoices, you might include the key cancellation term on the front page and attach your full terms of trade. Don't rely on terms that are only sent after the customer has already paid.

Templates can be a useful starting point, but cancellation terms work best when they're tailored to how your business actually books clients, incurs costs and delivers services.

What Are The Common Mistakes To Avoid?

The most common mistake is assuming you can keep money just because your website says non-refundable.

That wording helps, but it won't fix a fee that's hidden, unfair or out of proportion to your loss.

Try to avoid these traps:

• Adding terms after payment: Terms are much harder to rely on if the customer didn't see them before they paid.
• Using vague wording: Say what the fee is, not just that fees may apply.
• Keeping everything in every situation: If your business cancels or can't deliver, a blanket no-refunds rule is risky.
• Charging more than your likely loss: A cancellation fee should protect your business, not punish the customer.
• Forgetting consumer guarantees: If the customer cancels because your service wasn't provided with reasonable care and skill, refund rights may arise.
• Not training your team: Your staff should know what the terms say so customers get consistent answers.

Also think carefully about special sales methods. For example, uninvited direct sales under the Fair Trading Act can trigger specific cancellation rights, including a cooling-off period. If you sell through door-to-door sales, telemarketing or similar methods, get tailored advice before relying on standard cancellation wording.

Key Takeaways

• Your business can often keep a deposit in New Zealand if the customer agreed to clear, fair terms before paying.
• A non-refundable deposit isn't automatically enforceable. The amount should be reasonable and connected to your actual loss or work already done.
• Deposits, booking fees and cancellation fees are different, so use the right label and explain what the payment covers.
• The Fair Trading Act 1986 and Consumer Guarantees Act 1993 can affect whether your cancellation terms are fair and whether a refund is required.
• Tiered cancellation terms are often more practical and easier to justify than a blanket no-refunds rule.
• Your booking process matters. Put key cancellation terms in front of the customer before they pay.

If you'd like help with your service terms and conditions, deposit wording, cancellation fee policies or customer booking process, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.