You Can Cancel Almost Any Fixed-Term Contract on 20 Business Days' Notice

Most people believe they are stuck. The gym membership runs for twenty-four months, the paperwork says so, and the person at the counter says so too. The same goes for the cellphone plan and the satellite TV subscription nobody watches any more.

They are not stuck. Under the Consumer Protection Act you may cancel a fixed-term consumer agreement at any time, on 20 business days' notice, and the Act says this applies despite any provision of the agreement to the contrary.

That last phrase is the important one. It means the contract cannot remove the right. A clause saying you may not cancel, or may only cancel in month twenty-three, or must pay out the full remaining term, does not override the statute.

There is a cost — a reasonable cancellation penalty — and understanding what "reasonable" is anchored to is what stops you being overcharged for leaving.

The right, precisely

For a fixed-term consumer agreement, the Act gives you two ways out.

At the end of the term, you may cancel without penalty or charge.

At any other time, you may cancel by giving the supplier 20 business days' notice in writing or other recorded manner and form.

"In writing or other recorded manner and form" is doing useful work. Email counts. A recorded message through the supplier's own app counts. A phone call to someone who says they will note it does not, because you will have no record when it is disputed.

Note also who this protects: the section does not apply to transactions between juristic persons, regardless of turnover or asset value. This is a consumer right, not a business-to-business one.

What you pay when you leave early

Cancellation is not free, and the Act is specific about what the supplier may recover.

You remain liable for amounts owed up to the date of cancellation — the period you actually used.

The supplier may impose a reasonable cancellation penalty, and here is the anchor most people never see: the penalty relates to "any goods supplied, services provided, or discounts granted, to the consumer in contemplation of the agreement enduring for its intended fixed term."

Read that carefully, because it tells you what the penalty is for. It compensates the supplier for value it gave you on the assumption you would stay the whole term — the free handset, the waived joining fee, the discounted monthly rate that only made sense over twenty-four months. It is not a mechanism for recovering the entire unexpired balance as though you had never cancelled.

And the supplier must credit you with any amount that remains your property at the date of cancellation.

So when a penalty is quoted, the question to ask in writing is simple: what benefit was given to me in contemplation of the full term, and how does this figure relate to it? A number that cannot be explained on that basis is a number worth disputing.

The Act leaves the detailed basis for reasonableness to be prescribed, so we are not going to invent a percentage. What you can do is require the supplier to justify its figure against the test the statute actually sets.

They must warn you before the term ends

This obligation is widely ignored and worth knowing.

Not more than 80, and not less than 40, business days before the expiry date, the supplier must notify you in writing of the impending expiry — including any material changes that would apply on renewal, and the options available to you.

If you have ever been rolled into a new term without a word, that notice was probably never given. It is a statutory obligation, not a courtesy, and its absence is worth raising when you are arguing about what happens next.

Expiry means month-to-month, not a new fixed term

Here is the provision that contradicts how a great many contracts actually behave.

On expiry of the fixed term, the agreement "will be automatically continued on a month-to-month basis", subject to any material changes the supplier notified you about — unless you expressly either direct the supplier to terminate on the expiry date, or agree to a renewal for a further fixed term.

So the default at the end of a fixed term is a monthly arrangement you can leave. Being locked into another twenty-four months because you did not respond to something is contrary to that default, because a further fixed term requires your express agreement.

If you are told your contract "automatically renewed" for another full term, ask when you expressly agreed to that, and ask for the s14(2)(c) expiry notice.

Cooling off is a different, much narrower right

People routinely conflate the cancellation right above with "cooling off", and then discover the cooling-off period does not apply to them.

The cooling-off right attaches to direct marketing. Where a transaction results from direct marketing, you may rescind it without reason or penalty, by notice in writing or another recorded form, within five business days after the later of the date the agreement was concluded or the date the goods were delivered.

The supplier must then return any payment within 15 business days of receiving your notice, or of receiving the goods back, and may not try to collect payment on a rescinded transaction.

Three things follow. Five business days is short. It applies to direct marketing, not to a purchase you sought out yourself. And it is separate from the 20-business-day cancellation right — if the cooling-off window has closed, or never applied, the s14 route is still available to you.

The supplier's side of the same section

For completeness, because it cuts both ways: the supplier may cancel the agreement 20 business days after giving you written notice of a material failure to comply with the agreement — unless you rectify the failure within that time.

That rectification window is a right too. A notice of breach is not the end of the agreement; it starts a clock you can stop.

How to cancel properly

1. Put it in writing. Email is fine. Keep the sent copy.
2. Say what you are doing: give notice of cancellation under section 14 of the Consumer Protection Act, effective 20 business days from the date of the notice.
3. Identify the agreement — account number, contract number, the branch or product.
4. Ask for a final statement showing amounts owed to the cancellation date and any cancellation penalty, with an explanation of how the penalty was calculated.
5. Keep paying what is due to the cancellation date. Cancelling the agreement is not the same as stopping payment, and simply stopping payment is how a cancellation becomes a default.
6. Deal with the payment instruction separately and afterwards — our guide on what a debit order is and how to stop one covers that side. Stopping the collection does not cancel the contract; only the notice does.
7. Escalate in writing if the supplier refuses or quotes an unexplained penalty. The National Consumer Commission and the relevant industry ombud scheme exist for exactly this.

If you are on the other side of this as a small business, the obligations are set out in our guide to Consumer Protection Act obligations for small business.

For everything else, start at our money guides.

Frequently asked questions

Can I cancel a two-year contract early? Yes. You may cancel a fixed-term consumer agreement at any time on 20 business days' notice in writing or another recorded form, despite any provision of the agreement to the contrary.

My contract says I cannot cancel. Does that override the Act? No. The right applies despite any provision of the consumer agreement to the contrary.

What will it cost me? Amounts owed up to the date of cancellation, plus a reasonable cancellation penalty relating to goods, services or discounts given to you in contemplation of the agreement running its full term. The supplier must also credit you with anything that remains your property.

Is the penalty the rest of the contract? The Act does not describe it that way. It ties the penalty to the value given to you in contemplation of the full term, so ask the supplier to explain its figure on that basis.

Does this apply to my business's contracts? Not to transactions between juristic persons, regardless of turnover or asset value. It is a consumer protection.

Must the supplier tell me before my contract ends? Yes — not more than 80 and not less than 40 business days before the expiry date, in writing, including material changes on renewal and your options.

Can they renew me into another fixed term automatically? On expiry the agreement continues month-to-month unless you expressly direct termination or agree to a further fixed term. A new fixed term requires your express agreement.

Isn't there a cooling-off period? Only for transactions resulting from direct marketing: five business days from the later of conclusion or delivery, without reason or penalty. It is a separate and much narrower right.

How fast must I be refunded after cooling off? Within 15 business days of the supplier receiving your notice, or of receiving the goods back.