Is that deposit you put down really non-refundable? 

I remember years ago when I got married, the first thing we had to do was put down a deposit with the caterer, with the event space, with the photographer, everyone who seemed to be there on our big day had to have some kind of a deposit. If we went back and looked at many of those contracts, they were "non-refundable" deposits. So if my wife and I had called off the wedding or something else happened and the wedding didn't happen, we weren't getting the money back.

Now, as you probably know, in the last year or so things have changed. Many people had put down deposits on weddings and other events that were to occur during 2020 but they were canceled through no fault of anybody due to the COVID pandemic. So the question I get quite frequently now is, what do I do with that non-refundable deposit?

Businesses and Non-Refundable Deposits

If you're a business owner, should you be keeping the deposits or should you be returning them? If you're the person who gave the deposit, are you able to even get it back?

The answer really lies in the contract that you signed with that vendor. Many contracts were written prior to the pandemic and don't have any kind of provision for the return of a deposit. However, I think the last 15 or 16 months have taught us that it may be a good idea to have a force majeure clause, meaning a cancellation due to events beyond anybody's control.

As a business owner, it seems to be a better business practice to have some flexibility. It's one thing to have somebody cancel on you the day before their wedding because they found a better provider. It's something very different to have somebody not be able to have a wedding because the pandemic has shut down all the event halls and there's nowhere to have the guests ceremony. The most important thing to remember is that courts no longer look at non-refundable deposits the same way after the pandemic. It used to be that we'd look at the contract and go by its language. Now there's a lot more wiggle room, especially for events that are canceled by something like a global pandemic.

There are two ways for you to get your contract right if you are a business owner,

  • Trial and error ~ You can put whatever provision you want in your contract and hope that you can keep the money and nobody will complain.
  • Work with a professional who drafts contracts.

You can create provisions that allow for you to keep your deposits in certain circumstances, but be able to refund part or all of the deposit to somebody if it gets canceled for something that's out of everyone's control. One thing you want to also consider is how much work you have to put in before an event. If this is something or an event where you have to do a lot of research and you put in a lot of time, then the refund probably won't be the full amount. However, if all you're doing is keeping an open day in your calendar and you're gonna show up and do something that day, chances are these days that if a court looks at it, you may be told to return the entire deposit.

We'd all like to keep those deposits if we can as business owners, but the fact is, the last 2 years have taught us that there may be circumstances where you may have to return those deposits.

Next Steps

If you're ready to review your contract and make sure that your deposit provisions are correct and are going to have the best result for you and your customers, let's set up a complimentary Legal Strategy Session to review the best options for you and your business.

Andrew Ayers
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I work with business and estate planning clients to craft legal solutions to protect their legacies.