Commissioner's blog: Cancelling contracts during COVID-19
Changes to pre-estimated liquidated damages
From 1 January 2022, the maximum amount of pre-estimated liquidated damages that a dealer may charge is five per cent.
Let’s say you’d found the car or caravan of your dreams, even signed on the dotted line, but then the COVID-19 pandemic hit and you could no longer go through with the deal – you may be wondering what costs you’re liable to pay.
Consumer Protection has recently received a number of enquiries from consumers in the same position, who want to break the contract of sale due to job losses or travel restrictions, but are concerned about dealers slugging them with a huge fee.
According to the Motor Vehicle Dealers (Sales) Regulations 1974 (WA), a dealer may seek up to 15 per cent of the purchase price as pre-estimated liquidated damages if the contract is validly terminated as a result of a breach by the purchaser.
Even though 15 per cent is the maximum amount that can be charged, dealers should not be applying it as the default position. Any fee charged has to be a genuine and reasonable assessment of losses the dealer is likely to incur as a result of the deal not proceeding. These losses may for example include interest charges if the vehicle was part of the dealer’s floor plan, costs incurred as a result of preparing the vehicle for delivery, plus any transportation and administration costs.
It’s also worth noting that a consumer is entitled to receive their full deposit back and not be charged any pre-estimated damages if:
- the contract is broken because the dealer has breached their obligations;
- the consumer withdrew their offer before the dealer accepted it; or
- the consumer can’t meet their contractual obligations despite taking all reasonable steps to do so, because the consumer is unable to obtain finance in circumstances where the contract to purchase the vehicle was subject to finance.
Consumer Protection is encouraging dealers and their customers to negotiate in good faith in situations where the contract to purchase cannot be met due to COVID-19.
If a consumer feels the amount of pre-estimated liquidated damages sought by a dealer is excessive, they can lodge a complaint with Consumer Protection for investigation: https://www.commerce.wa.gov.au/consumer-protection/how-lodge-formal-complaint
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