Validity of Nonrefundable Deposits
Clients cancel appointments and events all the time. Things come up, schedules conflict, the weather is bad or people back out. It happens. However, what does this mean for the business owners who have reserved that spot in their schedule, turned down other opportunities and started making plans for the appointment/event? Well, if you have a clear non-refundable deposit clause in your agreement, you may be able to make yourself whole. The basic principle of a non-refundable deposit is to take payment in advance to avoid a future loss if the other party changes its mind.
With the exception of a few scenarios, such as nonrefundable retainers and real estate security deposits, non-refundable deposits are valid so long as they are explicitly stated within the contract and reasonable under the circumstances that existed at the time the contract was signed. See Md. Code Ann., Real Prop. § 8-203; Att'y Grievance Comm'n of Md. v. Stinson, 428 Md. 147, 50 A.3d 1222 (2012). For example, a court may find that a 70% non-refundable deposit for an event with a one-day turnaround is justifiable and reasonable under the circumstances, whereas a 70% non-refundable deposit for an event happening in due course may not be seen in the same light. It is also important to note that if a business owner breaches the contract, the other party may be entitled to a full refund of monies paid, including any “non-refundable” deposit.
It’s never pleasant to think about the “worst case scenario” of a relationship, but it is necessary to define expectations and protect your business!
Contact one of the attorneys at McNamee Hosea for more information.