Part 4. When things go wrong

Breach of contract

Sometimes things go wrong and one party to the contract may not carry out their responsibilities; this is called a breach of contract.

What if you breach your contract?

Where a breach of contract happens, the other party is often entitled to seek a remedy from the party that has not met their responsibilities under the contract. This prevents parties from entering into contracts and then not following through with the agreement made. The most common remedy for a breach of contract is to claim money to cover the loss that has been incurred by the other party. This remedy is called damages.

There may also be specific remedies set out in the law that would also apply to the breach of contract.

What if your customer breaches the contract?

You may be entitled to a remedy if a customer breaches their contract with you. The remedy must be a true reflection of the loss you have incurred and must not be excessive. Businesses often protect themselves from breaches of contract by taking deposits and advance payments.

Deposits and advanced payments

What is a deposit?

A deposit is a payment to reserve your goods and services and should only be a small percentage of the total cost of the contract price.

What is an advanced payment?

These differ from deposits as they reflect the costs you are incurring at specific periods in the contract. They could be taken to purchase materials, for example. You should always leave the consumer with a reasonable amount to be paid upon completion of the contract.

Any deposit or advanced payment that is retained must reflect your actual losses and you must take all reasonable steps to reduce any losses you have incurred. More advice on how to ensure you are dealing with your customers fairly, can be found in the Competition and Markets Authority's guidance.

Cancelling a contract

Where the customer has a legal right to cancel, or where they have a right to cancel set out in your returns policy or terms and conditions, this will not be a breach of contract.
This is a cancellation and if the customer has complied with the law or your returns policy, they are entitled to either a full refund or, if they are outside their statutory cooling off period, whatever rights your returns policy gives them. More advice about writing your returns policy can be found in the 'Writing a returns policy' guide.

Withdrawing from a contract

If either party to the contract changes their mind before the contract has been formed, then there is no contract.

Payment methods

If your contract is with a consumer, they may also have rights against their card provider or finance company - for example, if they have paid for your goods or services with a finance agreement or on a debit or credit card. If you breach your contract with the consumer, they may also contact the finance company. Consumers can hold the finance company jointly and severally liable for your breach of contract and seek a remedy from them. They could also use services such as chargeback, where the card provider may charge back the payment the customer has made to you, depending on the payment method used. You may therefore be contacted by the card issuer or finance company if a breach of contract is not resolved.

Resolving disputes

Having clear terms and conditions, which are fair to both parties, can often reduce the amount of disputes that a business will have with their customers. However, if you do have a dispute, it is important to have a clear complaints policy in place and to have good communication with the customer.

If you have followed your complaints procedure and have been unable to resolve the dispute, you may wish to consider using alternative dispute resolution (ADR). You are also required to send a consumer a deadlock letter with certain information requirements in it. More advice about ADR and these information requirements can be found in the 'Alternative dispute resolution' guide.

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