You and your rights: How not to lose a deposit

In the first of a series on consumer rights, Liz Hodgkinson looks at a buyer's obligations

In July, I ordered a brand-new car, and paid a pounds 300 deposit. The company was unable to provide me with the car I wanted for at least two months. Because this would have meant taxing, insuring and MOT-ing my existing car - something I was trying to avoid by buying a car on 1 August - I cancelled the order. When I requested return of my deposit the company refused to pay. I wrote to their head office and got a letter back confirming this refusal. Eventually, I contacted the car manufacturer's head office, and received a cheque for the full amount of the deposit the very next day.

It was an unpleasant little episode, and but for my persistence and the feeling that pounds 300 was worth fighting for, I would have lost that money. But, legally speaking, who was in the right?

The answer, in the strictest sense, is the car showroom. The existing law on deposits, as confirmed by the Consumers' Association and the National Consumer Council, is that once you pay a deposit you have entered into a contract binding on both sides. As a customer your only get-out is if you have made "time of the essence" - a legal term meaning you can cancel the order and have your deposit refunded if the time factor is essential, and the company has agreed to this in writing.

"If you place an order and pay a deposit, you have made a legally binding contract to purchase the goods," said Alison Lindley, legal expert at the Consumers' Association. "If you then change your mind you have broken the contract and must forfeit your deposit. There is no legal requirement on the company's part to deliver within a fixed period unless you as buyer have stated a specific deadline."

In my case, as the car firm had offered to pay for my MOT, it could be argued that they had provided me with a driveable vehicle in the meantime. But - and this is a big but - there is also the question of goodwill. If the company wishes to keep your custom, and can easily sell the goods it has ordered on your behalf to somebody else, then most will refund the deposit. You are unlikely to get a refund if the item has been specially designed for you, such as a custom-made sofa or curtains.

Diana Whitworth, of the National Consumer Council, said: "I've been in this business since the Seventies and the issue of deposits has always been thorny, with no real protection for the consumer, especially if companies go out of business. All we can advise is: think very carefully about putting down a deposit, and before entering into a binding agreement. Always negotiate - and ask about refunds before signing."