The outbreak of coronavirus (COVID-19) has brought about sudden changes to society with regulations forcing the closure of holiday accommodation and restricting consumers ability to travel, making holiday contracts impossible to perform (also called ‘frustrated’). In this event, consumers may be legally entitled to a refund. Therefore, best advice is to engage with the consumer.
There have been many examples of customers and businesses working constructively together to avoid the need to cancel completely, either by agreeing a revised booking date or by securing some other arrangement. These arrangements are voluntary but prove the majority of customers are keen to have a holiday to look forward to, which in turn helps those businesses that are struggling due to the financial impact of the current situation.
If consumers are unable to postpone to an alternative date, their legal right to a refund will depend on the type of contract agreed. If the accommodation is part of a package, specific regulations imply a contractual term that will enable them to receive a refund.
If the contract is not a package, your booking terms and conditions apply where they included a specific term to cover such events, sometimes referred to as a ‘force majeure’ clause. This will bind consumers if it is a “fair” contract term.
If you do not have standard terms and conditions, or they do not cover the situation, the Law Reform (Frustrated Contracts) Act 1943 applies, which grants consumers a statutory entitlement to a refund less a deduction of reasonable costs. Consumers may pursue failure to comply with these legal provisions through the county court.
Practical steps to resolving a holiday cancellation issue:
- Communicate with your client. Nothing in the legal provisions prevents a business and consumer coming to alternative arrangements (i.e. a rearranged date). Remember, these are voluntary arrangements and must be agreed by both parties.
- Check the terms of your insurance policy and see if it covers business interruption. Does it apply to the current situation? If it does, your insurance company should pay out. If they deny your claim you may need to speak to the Financial Ombudsman Service.
- Is the provision of accommodation part of a package? If it is, consumers are entitled to a full refund on all monies paid.
- If it is not part of a package, do your terms and conditions cover the situation, i.e. a ‘force majeure’ clause (major unforeseen events outside of either party’s control)? If so, these terms will apply if it is a fair term (i.e. it does not significantly imbalance the rights and obligations of the parties).
- If your terms and conditions do not cover the situation, consumers will be entitled to a refund (less reasonable costs incurred in dealing with the booking) by the Law Reform (Frustrated Contracts) Act 1943.
- The Government is providing financial support to businesses to reflect the impact that such obligations will have and advice and support on applying for this financial assistance can be obtained via your local council business rates team.
The Competition & Markets Authority (CMA) has also published this information and guidance:
- CMA to investigate concerns about cancellation policies.
- The coronavirus (COVID-19) pandemic, consumer contracts, cancellation and refunds.
- CMA update on enforcement action.
- COVID-19 cancellations: package holidays.
For business resilience support and guidance about coronavirus, visit the Heart of the South West Growth Hub COVID-19 support for business.