What is the law regarding non-refundable deposits?

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What is the law regarding non-refundable deposits?

I operate a home daycare. In my daycare contract it states that: “A deposit of two weeks must be paid to reserve a spot. I am reserving this space and unable to fill this spot with another child. If you decide after our agreement to not bring your child to Sprouts, this deposit will become non-refundable.” I have a family who paid a deposit to reserve a space. She signed the daycare contract that I provided, and then 2 weeks before her child was to begin she called to tell me she decided to keep him at his current care situation and would not be starting him in my daycare. She is asking for her deposit back. Should I return it to her?

Asked on July 18, 2014 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 7 years ago | Contributor

You are not legally required to refund your deposit: as a general matter, deposits are only refundable when the company, not the customer, is the reason the service is  not provided (e.g. you'd have had to refund it if you had "overbooked" your daycare and couldn't provide her child a space), unless the agreement/contract says otherwise and makes the deposit refundable. However, your contract does the opposite: it makes it very clear that the deposit is not refundable, and that term in your agreement is enforceable.

Whether you "should" return the deposit is a different question, and one only you can answer; you of course have the right to return it, if you think that's the right thing to do.


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