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What Is a Cancellation Charge?

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  • Written By: Alex Tree
  • Edited By: Melissa Wiley
  • Last Modified Date: 21 July 2014
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A cancellation charge occurs when a person enters a contract but terminates the deal sooner than the agreed upon date. The charge is either a flat fee or calculated based on the remaining days or months left to fulfill the contract. These charges are common on housing leases, mobile phone plans, and doctor’s appointments. Sometimes cancellation charges are waived when the customer reschedules rather than cancels altogether. In some cases, they are also avoided when a company offers poor service or fails to follow through on its end of the contract.

Many cancellation charges are flat fees, which are fees that do not change based on circumstance. For example, a landlord might rent out his or her apartment but charge $300 US Dollars (USD) if the lessee moves within six months. The lessee will owe the landlord $300 USD if he or she moves any time within six months, even if it is five days or five and a half months after signing the contract. In most cases, flat fees are the best kind of cancellation charge, because the buyer knows in advance the exact amount needed to buy his or her way out of the contract.

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Another kind of cancellation charge differs based on how long a person upheld his or her contract. For example, someone might find a good deal on a mobile phone package and sign a 24-month contract. Six months into the contract, that person can no longer pay or wants out of the contract for some other reason. The contract may have stated that the person must pay a flat fee, plus a percentage of money for every month of service he or she no longer wants. This kind of cancellation fee can be very expensive to buy out of and makes a hard choice for someone who can no longer uphold his or her contract due to money issues.

In some cases, a cancellation charge is waived when a person reschedules rather than cancels or experiences poor service. By rescheduling, a person is essentially still promising to spend money, but at a later date. Many health clinics and hotels will charge a fee for canceling, sometimes without mentioning that the customer need only reschedule instead to save money. In addition, a cancellation charge may be waived if a customer experiences poor or no service, though this depends on company policy and the exact complaint. Basically, the customer is let out of the contract free of charge out of goodwill or because the company realized that the best solution to a mistake is to let the customer go.

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