Are there laws or regulations that limit cancellation fees for service contracts?

UPDATED: Dec 29, 2011

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Are there laws or regulations that limit cancellation fees for service contracts?

We are starting a small business and developing our standard client contract and would like to charge a modest cancellation fee if the client wants to cancel before the contract term expires. Is there any guideline regarding this that we can utilize?

Asked on December 29, 2011 under Business Law, Washington


FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

Many states have statutes allowing the customer who signed a written service contract to be advised in writing that he or she can cancel the contract within three (3) days of signing without penalty if written notice is provided to the vendor. Your state may have a similar statute.

As far as cancelling a written contract after the three (3) day time period stated above by the customer with respect to cancellation fees, custom and practice for the amount of the fee charged depends upon the type of industry the service contract is for. Typically a one (1) month fee is charged with thirty (30) day written notice is what I have seen in the past.

It makes no sense from a business practice to have an unhappy client bound to a contract for a long term. I suggest that you consult further with a business attorney for drafting of the suggested language in your contracts.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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