Are there laws or regulations that limit cancellation fees for service contracts?

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Are there laws or regulations that limit cancellation fees for service contracts?

We are starting a small business and developing our standard client contract and would like to charge a modest cancellation fee if the client wants to cancel before the contract term expires. Is there any guideline regarding this that we can utilize?

Asked on December 29, 2011 under Business Law, Washington

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

Many states have statutes allowing the customer who signed a written service contract to be advised in writing that he or she can cancel the contract within three (3) days of signing without penalty if written notice is provided to the vendor. Your state may have a similar statute.

As far as cancelling a written contract after the three (3) day time period stated above by the customer with respect to cancellation fees, custom and practice for the amount of the fee charged depends upon the type of industry the service contract is for. Typically a one (1) month fee is charged with thirty (30) day written notice is what I have seen in the past.

It makes no sense from a business practice to have an unhappy client bound to a contract for a long term. I suggest that you consult further with a business attorney for drafting of the suggested language in your contracts.


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