Buyer’s Remorse and the Right to Cancel a Contract

You’ve just received a call from a homeowner who wants to cancel the contract he signed a month ago. And he wants his 10 percent deposit back. Now what?

The Federal Trade Commission’s Cooling-Off Rule gives buyers a right to cancel purchases of $25 or more for a full refund until midnight of the third business day after the sale. In addition, many states have passed their own laws to expand consumer protections beyond the FTC’s rule. Changes to Maryland’s Door to Door Sales Act that went into effect this June, for example, extend the “cooling off” period from three business days to five (seven business days if the homeowner is 65 or older). The law also now requires that a home improvement contractor obtain a signed written acknowledgment from buyers that they have been informed of their cancellation rights.

When Does the Law Apply?

The FTC Rule does provide some exceptions. The cooling-off period doesn’t apply to sales that are: 

• The result of prior negotiations at the seller’s 
• permanent place of business where the goods are regularly sold;
• Needed to meet an emergency; or
• Made as part of the buyers’ request for the seller to do repairs or maintenance on their personal property. (However, purchases made beyond the maintenance or repair request are covered.)

What Are the Signature and Notice Requirements?

Federal and state laws require sellers to provide consumers with both notice of their rights and cancellation forms. Under the FTC Rule, the seller must tell the homeowner about the right to cancel at the time of sale. The seller also must give “each buyer” two copies of a cancellation form and a copy of the contract or receipt. The contract or receipt should be dated, show the name and address of the seller, and explain the right to cancel, usually in language prescribed by law. Again, some states, such as Maryland, have made the law even more stringent.

What Counts as a Business Day?

There is some variation among the states about what constitutes a “business day.” Under both the federal law and Maryland’s law, for instance, a “business day” means any calendar day except Sunday or the following business holidays: New Year’s Day, Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans’ Day, Thanksgiving Day, and Christmas Day. Delaware and Hawaii, however, do not count Saturday as a business day.

What Happens if You Don’t Follow the Law?

Failure to follow notice requirements in home solicitation laws can have serious consequences. In some states, such as Indiana, the three-day right-to-cancel period doesn’t start until a consumer is given proper notice. Theoretically, this means that in a situation like the one at the beginning of this article, the consumer could cancel a contract after the project is completed and get back all of the money paid to the contractor.

In practice, however, some courts in similar situations have allowed contractors to recover some or all of their earnings under an equitable claim such as quantum meruit, which allows for payment for the value of the services provided in the absence of a valid contract. Some states also have criminal consequences for sellers who fail to follow the requirements of home solicitation laws. 

Word to the Wise

Remodelers would do well to ensure that their contract documents include all of the required language and that all salespeople understand their obligations to provide notice and copies of specific documents at time of sale. The added paperwork may be painful, but it’s nothing compared with the cost of noncompliance. It also makes sense to hold off incurring any job-related costs, especially for special-order materials, until the cooling-off period has expired.

This article is for informational purposes only and is not intended to serve as a substitute for consultation with a legal professional.