Mark Pestronk
Mark Pestronk

Q: Can our agency legally impose its own cancellation penalties on top of the supplier's? I know that we can put together a package with our own penalties, but what about a nonpackage? For example, if we book a cruise or resort with its own cancellation penalty of, say, 20% of the price for cancellations three to six months before departure, can we increase the penalty to 30% and keep the 10% difference? If there is no supplier penalty, can we impose one of our own? Can we go as far as to provide that there will be no refunds under any circumstances? Do we have to disclose that these are our cancellation terms and not the supplier's terms?

A: Any supplier can prohibit you from imposing your own cancellation penalties on top of the supplier's penalties. It is a fundamental principle of agency law that the principal (i.e., the supplier) can fix both the prices and the selling terms such as cancellation fees, and you must obey.

However, in the absence of such a dictate by the supplier, you are perfectly free to set your own selling terms. You can impose your own penalty on the supplier's fully refundable sale, or you can increase the supplier's penalty.

There is no requirement that a package be involved. The same freedom applies to anything you sell.

Needless to say, you need to get the client's agreement to your penalties at the time of sale. So, your penalties should be in a disclaimer that is either signed by the client or agreed to in an email exchange.

Under state unfair trade practices laws, you probably also need to disclose which cancellation terms are yours and which are the supplier's. Otherwise, you could be accused by a consumer of engaging in a deceptive trade practice, and you will certainly upset the supplier if you try to pass off your penalties as those of the supplier.

At the federal level, you already know that you can bundle service and transaction fees into the price of an airline ticket and that you do not have to break down the price into fare and fee. By extension, if you can build fees into the price, it follows that you can build more penalties into the cancellation terms.

Finally, having 100% cancellation penalties on everything you sell is likewise legal, and I have a few agency clients that have such rules because they specialize in ultrahigh-end clients who can afford to pay. Those agencies have retainer agreements with each client clearly spelling out the nonrefundability of every travel arrangement.

Although any supplier has the right to prohibit you from imposing your own penalties, I don't know of any suppliers that do so. Even American Airlines, which has a 6,300-word supplement to the standard ARC agreement with lots of selling rules, does not prohibit an agency from having its own penalties.

If any readers know of suppliers that prohibit agency cancellation penalties in their agency agreements, please let me know.


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