Layby sales

It pays to know your rights when you put something on layby.

The Layby Sales Act 1971, covers layby sales for goods priced at $7,500 or less, but not sales of vehicles by licensed motor vehicle dealers.

What is a layby?

A layby sale is usually one where you pay by one or more instalments and the goods are held by the retailer until you pay off the balance within an agreed time period. You'll usually also pay a deposit. 10-20% 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 under the Layby Sales Act. Retailers cannot make up other names, like "instalment deal", just to avoid their legal responsibilities.

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

The only additional charge a retailer can add is a storage fee. This might apply if the goods are too large to be stored at the shop. The retailer must ask you whether you agree to this fee when you start the layby.

You can also agree to pay an extra charge for delivery of the goods.

As with any contract, it's useful to have a written note of your agreement, signed by you and the retailer. You should also get a receipt for each payment.

Keeping track of payments

You can request a written statement detailing the price, how much is owing, the total amount you have paid, the current value of the goods to the retailer, any selling costs and loss in value, and your refund if you cancel. The retailer has seven days to provide the statement.

But you must make your request in writing, and you can't do it more often than every 30 days. You must also give the retailer 25 cents each time. It might be easier just to call in and make a note of the details yourself.

If the retailer cancels the deal, you're entitled to a written statement free of charge.

Cancelling a layby

Unless you agree, a retailer can only cancel a layby if you break the agreement, for example, by not keeping up the payments.

You can cancel a layby at any time before you make the final payment, and you don't have to give a reason. However the shop can deduct "selling costs" and "loss of value" from the refund.

Selling costs are the costs the retailer incurred in administering the layby. We think they should usually be no more than $10 to $15.

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 and be on sale in a few months, the loss of value could be substantial. Most often, though, it should be minor. You don't have to pay for loss of value if you cancel within a month of sale.

A retailer cannot charge you loss of value if they are the only shop marking the item down, or it's only being marked down temporarily. The market value must genuinely have decreased.

If an item was drastically marked down, you could owe the retailer some money (if the loss of value is greater than the amount you've already paid off), but only if you've paid a deposit plus at least one other payment. If you've only paid a deposit and cancelling would mean you owe the retailer money, the retailer can keep your deposit but cannot claim more money from you.

Whichever side cancels, you are entitled to a refund in cash or by cheque.

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 parties agree.

If layby goods are sold

If a shop sells your layby goods to someone else, you must be given an acceptable substitute. If this is not possible, you must be refunded in full. You can also claim any increase in price you have to pay for the same goods elsewhere.

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 do not own the goods until you've made the final payment. It is 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.
• Read our article on the Consumer Guarantees Act.