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Restaurants: can they charge a non-refundable deposit for reservations?

A recent trend amongst South African restaurants, in particular at fine-dining establishments and stylish boutique eateries, is to request a non-refundable deposit upon making reservations.

The question is, however, whether restaurants are entitled to such a deposit?

restaurants are entitled to request a non-refundable deposit from patrons when a reservation is made

If a patron does not honour his booking, restaurants are allowed to charge a cancellation fee.

In terms of the Consumer Protection Act 68 of 2008 (CPA), restaurants are entitled to request a non-refundable deposit from patrons when a reservation is made. This is to make provision in the event the patron does not honour their booking.

Section 17(3) of the CPA also allows a restaurant to charge a cancellation fee when the patron cancels the booking without adequate notice, as agreed, or if the patron does not arrive at all.

“Section 17(3): A supplier who makes a commitment or accepts a reservation to supply goods or services on a later date may—

(a)   require payment of a reasonable deposit in advance; and

(b)   impose a reasonable charge for cancellation of the order or reservation, subject to subsection (5).”

The restaurant’s point of view

It is important to take the position of the restaurant into account in this discussion, as the restaurant is a service provider that stands to lose business if they hold a table open for a customer while turning other potential patrons away. If the restaurant then receives a cancellation from the customer, then the table was not producing revenue for the restaurant.

The request for the abovementioned deposit serves three purposes, namely:

  1. To secure the reservation;
  2. As financial security to cover a portion of the restaurant’s loss in the event of a cancellation without adequate notice, or non-arrival; and
  3. To penalise the patron for their last minute cancellation or non-arrival.

What is a reasonable deposit and/or cancellation fee?

Both the deposit and the cancellation fee have to be “reasonable”.

Section 17(5) of the CPA defines a charge as reasonable if:

  1. It does not exceed a fair amount in relation to the goods and services that were reserved;
  2. The length of notice of cancellation provided by the consumer is taken into account; and
  3. The reasonable likelihood that the service provider will find an alternative consumer between the time of being notified as to the cancellation and the time of the cancelled reservation.

The cancellation fee must be in proportion with the minimum loss suffered by the restaurant. A deposit is not reasonable if it is likely to exceed the cost of your meal.

A higher cancellation fee will be payable should the customer give inadequate notice of a cancellation. It will, however, be unreasonable for a restaurant to charge a cancellation fee in the event that the tables were actually resold or were able to be resold, as the CPA requires from restaurants to attempt to re-sell the tables in such an instance.

How is the deposit paid?

The deposit must be a cash deposit preferably made by EFT. Section 51 of the CPA provides that restaurants are not permitted to ask a consumer to provide his/her credit or debit card, bank account, ATM card, or any similar identifying document or device or provide a personal identification code, or number to be used to access the account of a consumer.

Some restaurants make use of “Dineplan”, which requires a pre-payment via credit card of a set amount per person. The credit card transactions are processed through a third party secure payment portal and the full amount will be refunded should the patron cancel the booking no later than 24 hours beforehand.

The restaurant’s responsibility

Section 65 of the CPA places a responsibility on a restaurant to take reasonable care and exercise diligence in looking after a consumer’s deposit. If reasonable care has not been taken, the restaurant will be liable to the customer for any loss resulting from a failure to comply with the above.

Section 47 of the CPA also provides that the restaurant should honour the reservation taken. The restaurant could be liable to compensate the consumer for costs directly incidental to its breach should it fail to honour its obligation towards the consumer. An example of these costs could be the consumer’s travel costs.

It is of extreme importance that restaurants have a clear cancellation policy in place that can deal with the manner in which the deposit will be utilised or retained in the event of a cancellation. This must also be communicated to the patron when the reservation is made and the deposit is paid.

Do deposits work?

Deposits are worth considering, especially in specialty restaurants with little to no walk-ins. These restaurants are seldom able to refill their “lost” seats. Since taking deposits, some restaurants are reported to have reduced cancellations and/or non-arrivals by as much as 75%.

Abrahams & Gross provides expert legal advice relating to litigation, regulatory law and other related legal matters. Please don’t hesitate to contact one of our attorneys with any queries.

Abrahams & Gross Attorneys

t   021 422 1323  |  e  info@abgross.co.za

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The articles on these web pages are provided for general information purposes only. Whilst care has been taken to ensure accuracy, the content provided is not intended to stand alone as legal advice. Always consult a suitably qualified attorney on any specific legal problem or matter.

 

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