Cancelling a contract to buy a vehicle with a dealer

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Consumer

When you sign a contract to purchase for a car, caravan, camper trailer or campervan , 4WD, motorbike, truck, or a commercial vehicle, a dealer must provide you with a contract.

There is no cooling off period on contracts when buying one of the above from a dealer in Western Australia.

If you sign a contract to buy a vehicle and need to cancel the agreement, a dealer can ask you to pay what is known as “pre-estimated liquidated damages”.  This is the amount a vehicle dealer can charge a consumer when a contract to buy a vehicle is terminated.  A dealer can charge up to 15 per cent of the total purchase price.  

Maximum not default

Even though 15 per cent is the maximum amount that can be charged, dealers should not be asking for this amount as a 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 include:

  • costs incurred as a result of preparing a vehicle for delivery; and
  • any transportation or administration costs.

A dealer should be able to justify the charges are reasonable and be able to demonstrate how the liquidated damages were calculated by linking the claim to actual loss.

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.

When there should be no charge

A consumer is entitled to receive their full deposit back and should not be charged any pre-estimated liquidated damages if:

  • the contract is broken because the dealer has breached their obligations, for example is unable to deliver the vehicle by the date agreed;
  • the consumer withdrew their offer before the dealer accepted (the contact was not signed by both parties); or
  • the consumer cannot meet their contractual obligations despite taking all reasonable steps to do so, for example the buyer is unable to obtain a loan in circumstances where the contract to purchase the vehicle was subject to finance

Consumer Protection encourages dealers and their customers to negotiate in good faith in situations where a contract to purchase a vehicle cannot be met due to COVID-19.

If you feel the amount of pre-estimated liquidated damages sought by a dealer is excessive, discuss with the dealer directly and if you are unable to reach a satisfactory resolution, you can make a complaint.

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