Cancellation Fees And Consumer Guarantees Under NZ Law (CGA And FTA)

Cancellation fees can be a lifesaver for small businesses. If you’re booking out your time (or your team’s time), turning down other work, ordering stock, or reserving capacity, a last-minute cancellation can hurt.

But there’s a catch: in New Zealand, you can’t just charge any cancellation fee you like and assume it’ll be enforceable. Your cancellation policy needs to line up with key consumer laws, especially the Consumer Guarantees Act 1993 (CGA) and the Fair Trading Act 1986 (FTA).

This article breaks down what NZ businesses need to know so you can use cancellation fees confidently (and fairly), reduce disputes, and protect your cashflow. We’ll focus on how cancellation fees can be set up in a way that’s consistent with the Consumer Guarantees Act.

Why Cancellation Fees Are A Legal “Hot Spot” For Small Businesses

If you’re running a service-based business (think trades, beauty, health and wellness, coaching, events, rentals, cleaning, repairs, professional services, and similar), cancellations often create a very real loss.

For example, you might:

• reserve staff and equipment for a booking
• turn away other paying customers
• pay suppliers upfront or order perishable/special-order materials
• spend time preparing (admin, designs, plans, pre-consult calls)

So it’s totally reasonable to want a cancellation fee. The legal issue is how you charge it and how you explain it.

From a customer’s perspective, a cancellation fee can feel like a penalty. And if your policy is unclear, excessive, or applied unfairly, you can end up with:

• refund demands and chargebacks
• negative reviews (often focused on “unfair fees”)
• disputes that cost more time than the fee is worth
• risk under the Fair Trading Act (misleading or deceptive conduct)
• risk under the Consumer Guarantees Act if you try to avoid CGA rights improperly

This is why it’s worth getting your customer terms right from day one, even if you’re a very small operation.

How The Consumer Guarantees Act Affects Cancellation Fees

The Consumer Guarantees Act 1993 (CGA) gives consumers automatic guarantees when they buy goods or services for personal, domestic, or household use (and not for resupply). In plain terms, if you sell services to consumers, you generally need to deliver those services with:

• reasonable care and skill
• fitness for a particular purpose (if the customer relies on your expertise)
• completion within a reasonable time (if no specific timeframe is agreed)
• a reasonable price (if price isn’t agreed in advance)

So where do cancellation fees fit in?

Cancellation Fees Aren’t “Banned” By The CGA

The CGA doesn’t say “you can’t charge cancellation fees”. You usually can charge them.

However, CGA issues can pop up when a cancellation happens because the consumer is unhappy with your service, your delivery, or your conduct. If a customer is cancelling because they say you’ve failed to meet CGA guarantees, they may be entitled to remedies under the CGA (for example, requiring the problem to be fixed, cancelling the contract in some situations, or obtaining a refund or compensation). Those CGA remedies can sometimes be inconsistent with charging a cancellation fee as if it were a simple change-of-mind cancellation.

In other words, a cancellation fee policy isn’t a magic shield against CGA remedies.

Be Careful If The “Cancellation” Is Really A Remedy For Your Breach

Imagine this common scenario:

• A customer books a service on a specific date.
• You change the date at short notice (or can’t attend).
• The customer cancels because the new timing doesn’t work.
• You still try to charge a cancellation fee.

That’s where things get risky. If the cancellation is effectively happening because you didn’t deliver what was agreed, enforcing a cancellation fee can create legal and reputational problems.

A good cancellation policy should build in some common-sense flexibility, including where you’re the one who can’t perform or you haven’t delivered the service with reasonable care and skill.

Trying To “Contract Out” Of The CGA Can Backfire

Some businesses try to solve cancellations by putting strong “no refunds” or “all deposits are non-refundable” statements everywhere.

For consumer customers, you generally can’t exclude CGA rights just by writing it into your terms. For business-to-business sales, it may be possible to contract out of the CGA in some situations (if it’s fair and reasonable), but you should get advice before relying on this.

If your terms are built on “you have no rights” style wording, you can also run into Fair Trading Act issues (more on this below).

How The Fair Trading Act Applies To Cancellation Policies (And Why This Often Matters More)

If you’re looking at cancellation fees and consumer law in NZ, the Fair Trading Act 1986 is often the bigger day-to-day risk for small businesses.

That’s because the FTA is all about your conduct and your communications - what you say, what you imply, and how you present your terms to customers.

Cancellation Fees Must Not Be Misleading Or Unclear

Under the FTA, you must not engage in misleading or deceptive conduct (or conduct that is likely to mislead or deceive). In practice, cancellation disputes often come down to simple things like:

• the fee wasn’t disclosed before payment
• the fee was hidden in fine print
• the customer thought they could reschedule, but got charged anyway
• your staff applied the policy inconsistently
• the website says one thing, your invoice says another

Even if your cancellation fee is “reasonable”, you can still get into trouble if you didn’t communicate it properly.

Unfair Contract Terms Risk: Watch “One-Sided” Cancellation Clauses

If you use standard form terms for consumers, the FTA’s unfair contract terms regime can also matter. In broad terms, a cancellation clause is higher risk if it’s heavily one-sided (for example, you can cancel at any time without consequence, but the customer pays a large fee even if you can easily fill the spot), or if it creates a significant imbalance that isn’t reasonably necessary to protect your legitimate business interests.

This doesn’t mean you can’t charge cancellation fees. It means your cancellation policy should be defensible as fair, proportionate, and tied to a real business reason.

“No Refunds” Statements Can Be Risky If They Suggest Customers Have No Rights

A blanket “no refunds” sign (or website statement) can create problems if it implies customers can’t get a remedy where the CGA applies. You can still have a strict change-of-mind policy - but you should be careful about how it’s phrased.

As a rule of thumb, if your wording could lead a customer to believe they have fewer rights than they really do, you may be in unsafe territory.

Pricing Representations: Make Sure Fees Are Transparent And Specific

The FTA also covers misleading pricing representations. For cancellation fees, best practice is to communicate:

• the amount (or how it’s calculated)
• when it applies (for example, cancellations within 24 hours)
• how the customer can avoid it (for example, reschedule with notice)
• any exceptions (for example, where you cancel or can’t supply)

If you’re collecting customer details online (for example, through a booking form), it’s also worth checking your broader compliance setup, including having a tailored Privacy Policy.

What Makes A Cancellation Fee “Reasonable” (And More Likely To Be Enforceable)

When business owners ask “Can I charge a cancellation fee?”, the real question is usually:

“Will my cancellation fee hold up if a customer disputes it?”

There isn’t one perfect formula for every industry, but there are some practical principles that tend to keep you on the right side of consumer law and reduce arguments.

Link The Fee To Your Genuine Loss (Not Punishment)

A cancellation fee is safest when it reflects a genuine estimate of loss you suffer due to the cancellation.

That could include:

• staff time reserved for the booking
• admin time already spent preparing
• supplier costs you can’t recover
• loss of chance to rebook the slot (especially at short notice)

This is also important under general contract law principles: if a “cancellation fee” is really a penalty (out of proportion to the likely loss), it may be harder to enforce.

Use A Tiered Approach Based On Notice

Many businesses reduce disputes by using tiers. For example:

• More than X days’ notice: no fee or small admin fee
• Within X days/hours: a percentage fee (or deposit kept)
• No show: higher fee (because you can’t rebook)

This approach feels fairer to customers and makes it easier to justify your policy if questioned.

Allow Rescheduling Where Practical (And Be Clear On The Rules)

Rescheduling can be a good middle ground: you protect your revenue and the customer avoids losing money.

If you offer rescheduling instead of cancellation, make sure your policy clearly sets out:

• how many times a booking can be rescheduled
• how much notice is required
• how long the credit is valid for
• what happens if the customer doesn’t rebook

Clarity is what keeps your cancellation fee policy from becoming a Fair Trading Act headache later.

Be Consistent In How You Apply The Policy

Inconsistent enforcement is one of the fastest ways to create disputes, especially online where customers share experiences.

Even if you sometimes waive fees as a goodwill gesture, it helps to have internal guidelines for your team so customers are treated consistently.

How To Communicate Cancellation Fees So You Stay Compliant (And Get Paid)

Legally and commercially, the “secret sauce” is simple: make your terms clear, upfront, and easy to find before a customer pays.

Put The Policy Where Customers Actually See It

Depending on how you sell, this might include:

• online booking pages (with a checkbox acknowledging the policy)
• quotes and proposals
• invoices (especially deposits)
• appointment confirmation emails/SMS
• terms on your website

If you operate online, well-drafted Website Terms And Conditions (or platform/booking terms) can help you present the cancellation policy properly and tie it to the customer’s purchase.

Avoid Ambiguous Wording

Vague wording creates disputes. For example, “late cancellations may incur a fee” is an invitation for a customer to argue about what “late” or “may” means.

Instead, aim for wording that answers:

• What counts as a cancellation?
• What counts as a reschedule?
• What is the timeframe?
• What is the fee?
• When will it be charged?

Make Sure Your Payment Process Matches Your Terms

Your cancellation fee needs to be practically enforceable, not just theoretically “legal”. That means your payment flow should support the policy. For example:

• If you take a deposit, your terms should clearly say when it’s refundable or non-refundable.
• If you store card details for late cancellation charges, you need to be careful about consent, privacy, and payment provider rules.
• If you invoice after the cancellation, you should expect a higher dispute risk and have strong written terms.

For many service businesses, the cleanest approach is having a clear customer agreement or booking terms as part of your broader Business Terms.

Common Scenarios (And How To Handle Cancellation Fees Safely)

Cancellations don’t all look the same. Here are some common situations small businesses deal with, and what to watch for.

Scenario 1: Customer Cancels Because They Changed Their Mind

If the customer simply changes their mind (and there’s no CGA failure), you can usually rely on your cancellation policy, as long as it was clearly disclosed upfront and the fee is reasonable.

Tip: if you offer a “cooling off” or goodwill cancellation window, make sure it’s written clearly so customers don’t assume they can cancel anytime.

Scenario 2: Customer Cancels Because They’re Unhappy With The Service

This is where CGA risk increases. If a customer alleges the service wasn’t carried out with reasonable care and skill, or that you didn’t do what was agreed, they may be entitled to a remedy under the CGA. Depending on the situation, charging a cancellation fee (or refusing any refund/credit) may be inappropriate, or you may need to negotiate a practical solution.

Tip: treat this as a dispute-resolution issue, not just an “apply the fee” issue. A rigid stance can escalate into complaints and reputational damage.

Scenario 3: You Cancel Or Reschedule The Booking

If you’re the one cancelling, charging the customer a cancellation fee doesn’t make sense and is likely to lead to complaints.

Tip: build a clause into your policy that explains what happens if you need to reschedule (for example, offering a new booking time or a refund of deposits for that booking).

Scenario 4: “No Shows”

No-shows can justify a stronger fee because you’ve lost the slot and can’t usually rebook it.

Tip: still make sure the no-show fee is clearly disclosed and not a surprise, and consider whether genuine emergencies should be handled case-by-case.

Scenario 5: Custom Orders Or Perishable Stock

If you’re buying materials specifically for a customer (custom-made goods, special-order parts, perishable items for catering), you can often justify a higher cancellation fee or a non-refundable deposit.

Tip: spell out the reason in your terms. Customers are less likely to dispute a fee if they understand it’s tied to real supplier costs.

Key Takeaways

• Cancellation fees are generally allowed in New Zealand, but your policy should be fair, clearly communicated, and applied consistently to reduce disputes.
• The Consumer Guarantees Act 1993 can affect cancellation situations where a customer is cancelling because they say you failed to meet consumer guarantees. A cancellation fee clause won’t necessarily override CGA remedies.
• The Fair Trading Act 1986 is a major risk area for cancellation fees because unclear, hidden, or misleading cancellation policies (including “no refunds” messaging) can create compliance issues.
• For standard form consumer contracts, unfair contract terms rules under the FTA can also be relevant, particularly for one-sided or disproportionate cancellation clauses.
• A safer cancellation fee policy is usually tied to a genuine estimate of loss, uses a tiered notice-based structure, and clearly explains what happens for cancellations, rescheduling, and no-shows.
• Your cancellation policy should be communicated before payment (booking pages, quotes, invoices, confirmations), and should match your actual payment and booking process.

Disclaimer: This article is general information only and does not constitute legal advice. If you need advice about your specific situation, it’s best to speak with a lawyer.

If you’d like help setting up or reviewing a cancellation policy that actually fits your business (and aligns with the Consumer Guarantees Act and Fair Trading Act), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.