Non-Refundable Deposits, Retainers and Liquidated Damages

November 29, 2016  •  Leave a Comment

I've seen over and over again, photographers using the term, "non-refundable deposit".  In a service industry such as photography, contract law states that Payment for a service is not earned until the service is performed. Seems pretty straightforward, right? Except for when it’s not. Courts have consistently ruled that money paid to cover advance fees for the performance of a service are not actually earned until the service is performed. Simply put, the money isn’t yours’ until you actually do what you’re being paid to do.  Therefore, with this being said, all deposits paid for photography services are considered to be fully refundable.

 

So what about changing the term to "Retainer"?  Based on the decisions by numerous courts, the term, "Retainer" can only be used in the context of a client and an attorney.

 

So what do we as photographers use in our contracts and wording to cover ourselves in the event of cancellation or the no-show of a client.  The answer is simple.  Use the word, "Liquidated Damages".  Liquidated Damages are defined as, "Monetary compensation for a loss, detriment, or injury to a person or a person's rights or property, awarded by a court judgment or by a contract stipulation regarding breach of contract."

 

Generally, contracts that involve the exchange of money or the promise of performance have a liquidated damages stipulation. The purpose of this stipulation is to establish a predetermined sum that must be paid if a party fails to perform as promised.

 

Damages can be liquidated in a contract only if (1) the injury is either "uncertain" or "difficult to quantify"; (2) the amount is reasonable and considers the actual or anticipated harm caused by the contract breach, the difficulty of proving the loss, and the difficulty of finding another, adequate remedy; and (3) the damages are structured to function as damages, not as a penalty. If these criteria are not met, a liquidated damages clause will be void.

 

Personally, all my contracts state that Deposits are fully refundable but in the case of cancellation or if the client fails to show up at the appointed time, Liquidated Damages will be charged in the amount of, guess what?  They're the same amount as the Deposit.  And all my Deposits are reasonable and a set amount as opposed to a percentage of the total cost of the package being offered.


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