Layby sales

What is a layby?

A layby sale is one where you pay by instalments and the goods are held by the retailer until you pay off the balance or a specified portion of the total price. You'll usually pay a deposit: 10 to 20% of the purchase price is the usual amount of a deposit but you and the retailer can agree to a different amount.

If the sale process meets this description, it will be defined as a layby. Retailers can't make up other names, like "instalment deal", just to avoid their legal responsibilities.

With layby sales, you don't own the goods until you've made the final payment. It's the retailer's responsibility to have the goods insured.

Layby agreement

Every layby sale agreement must be in writing and expressed in plain language. You must be given a copy at the time the agreement is made.

The front page of the agreement must contain:

• a clear description of the goods to be supplied
• a summary of your rights to cancel the agreement
• whether or not a cancellation charge applies and, if so, the amount or how it’s calculated
• the trader’s name, street address, phone number and email.

The agreement must also include the total price payable and must be dated.

Keeping track of payments

At any time you can request a written statement detailing the price, the amount you’ve paid, how much is owing, and any cancellation charge payable if you cancel. The retailer has 5 working days to provide the statement. It must be provided free of charge.

Cancelling a layby

You can cancel a layby at any time before you take possession of the goods and you don't have to give a reason.

The trader can only require you to pay a cancellation charge if this is set out in the layby agreement. Any cancellation charge must not be more than the trader’s “reasonable costs”. These include:

• Administration costs, for example, office expenses.
• The costs of storing and insuring the goods while they were on layby.
• The loss in value of the goods between the date of the agreement and the date of cancellation. Loss of value is the difference between the item's original price and the price the retailer expects to sell it for now. If you're buying clothes or something else likely to date quickly, the loss of value could be substantial. Most often, though, it should be minor.

A trader can only cancel a layby and charge you a cancellation fee if you break the agreement (for example, by not keeping up the payments). They can also cancel the agreement if they cease trading, or owing to circumstance beyond their control, the goods are no longer available and no satisfactory substitute is available. But they can’t charge a fee in these cases.

Whichever side cancels, you’re entitled to a refund. If the amount you’ve paid isn’t enough to cover the cancellation charge, the trader can recover the balance from you.

Price changes

A retailer cannot increase the price of layby goods. But if you have an item on layby and that same item in the shop is reduced in price, you still have to pay the original price. This is because the layby agreement is a contract that can't be altered unless both sides agree.

Damaged goods

Goods on layby are still covered by the Consumer Guarantees Act. If the goods are damaged or faulty, the shop must repair them, replace them, or give you a full refund. If you wished, you could negotiate a discount.

With layby sales, you don't own the goods until you've made the final payment. It's the retailer's responsibility to have the goods insured.

Trouble meeting payments

If you're having trouble meeting payments, but want to continue your layby agreement, ask the retailer if the time period can be extended and therefore the amount of each payment reduced. They don't have to agree, but it will often be a more satisfactory option for both sides than cancelling the deal.

Retailer in receivership

If your retailer goes into receivership, contact the receiver, whose name and address will probably be on a sign on the shop door. Assuming your goods are still there, you can continue with the agreed payment schedule. If several people put goods like yours on layby and there aren't enough to go around, priority goes to those who've had their layby deal the longest.

If you don't want to buy the goods, or there aren't enough to go around, you are theoretically entitled to a refund. However, when a business goes bust, few creditors get back all their money.

Taking it further

If you are in dispute with a retailer you can take your case to a Disputes Tribunal.

Retailers also risk being prosecuted by the Commerce Commission for failing to comply with requirements for layby sales. Penalties for breaches are $10,000 for an individual and $30,000 for a company.

The commission also has the option of issuing an infringement notice. The maximum infringement notice fine is $2000.