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The Caterer

Wake-up call – When a booking becomes a legally binding contract

27 March 2012
Wake-up call – When a booking becomes a legally binding contract

Are you within your rights to charge a customer for cancelling a booking? Legal expert Lucy Lillywhite describes when a booking becomes a contract

The Problem

Telephone and online bookings are part of everyday restaurant life, with many made and cancelled by customers every day. But when does a booking become a commitment?

The Law

The essential requirements under English law for a contract to be formed are:

An offer by one party

â- Acceptance of that offer by the other party

â- Consideration (ie, payment of money)

â- An intention by both parties to be legally bound

There is no requirement that a contract must be in writing (which means a contract can be made over the phone or online).

Expert Advice

Whether a contract is formed when a customer makes a booking can be answered by whether the four points above are present. The first two are easily satisfied. When a customer enquires about a table reservation, the restaurant makes an offer to that customer when it indicates that a table is available for the required number of people at the requested time (or offers suitable alternatives). The customer then accepts that offer by confirming that they want to proceed with the reservation on those terms and the table is "booked".

The complications arise when we address the third element - consideration. When a customer does not pay a deposit for the reservation nor provide credit card details it would be hard to say that "consideration" had passed from the customer to the restaurant and, in this instance it can be said that no legal contract exists between the parties. Alternatively, if the customer were to pay a deposit to hold the reservation this would be "consideration" and would indicate that a contractual arrangement does exist.

Consider, however, the situation when a customer provides credit card details but no payment is to be taken from that card by the restaurant. Can simply providing these details be considered adequate "consideration"?

On the face of it, as no payment has been taken from the card, one would presume that consideration had not been given and no contract would exist. However this does not consider why the credit card details are taken by the restaurant in the first place.

Often, this practice is linked to the restaurant's cancellation policy, which will entitle it to deduct money from the card should the customer fail to turn up or cancel at short or no notice. In this instance, by providing the credit card details, the customer is acknowledging that they will incur liability and "promising to pay" should they fail to honour their side of the agreement. This "promise to pay" can be considered the adequate consideration needed to give rise to a contract between the customer and the restaurant. Where consideration is present, it can be presumed that the parties are intending to be legally bound to the agreement.

Where a contract exists between the customer and the restaurant, the parties are bound to fulfil their obligations under that contract. Cancellation or amendment to this booking will equate to termination or variation of the contract. So, depending on the facts and whether there's been any real damage, there could be liability.

Check list

Restaurants should consider taking the following steps to guard against loss from cancelled or unused bookings:

â- Take a deposit or credit card details to ensure the customer is contractually bound to honour the booking

â- Have a clear cancellation policy entitling the restaurant to retain the deposit (or take payment) if the customer cancels with little or no notice

â- In the policy set out instances that will entitle the restaurant to cancel the booking without breaching the contract - for example, if the customer is aggressive

â- Make sure the customer is aware of the cancellation policy at the time of booking and agrees to abide by its terms.

Beware!

Any contracts where one party is a consumer cannot include any unfair terms. To ensure a restaurant's cancellation policy complies with this, where a restaurant is entitled to retain a deposit if the customer cancels a booking, include a term allowing for the customer to also receive an amount by way of compensation should the restaurant cancel the booking in breach of the policy's terms (ie, for no valid reason).

contact

Lucy Lillywhite is a solicitor at Charles Russell LLPlucy.lillywhite@charlesrussell.co.uk

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