Consumer Rights

Cancellation Fees and Penalties: Can a Contract Make You Pay?

Many contracts say you owe a fixed amount if you cancel or break the deal. Whether that amount can be collected depends on whether it is fair.

White folded printed paper on table

Many contracts include a clause saying what you must pay if you break the contract, such as a cancellation fee. Courts call this a liquidated damages clause.

The short answer

A clause that is a genuine pre-estimate of the other side's likely loss is usually enforced. A clause meant to punish you, an amount far beyond any likely loss, is a penalty, and courts may refuse to enforce it.

Liquidated damages

a man in a suit signing a document with a pen

An amount agreed in advance that reasonably estimates the loss, such as a deposit kept for a cancelled event booking.

Penalties

An amount that is extravagant compared with the greatest loss that could result, meant to scare you into performing.

Consumer agreements

Ontario's Consumer Protection Act has special rules for many consumer agreements, such as cancellation rights for gym memberships, internet agreements and door-to-door sales, which can override a contract's fees.

Deposits

Deposits are treated a little differently: a reasonable deposit may be kept if you back out, but an unusually large one may be challenged.

What to do

  • Read the clause, and ask the business how the amount was calculated.
  • Check the consumer protection rules for your type of agreement.
  • Get advice before paying a large fee you think is unfair.
Talk to NEO

Need help with a consumer dispute? NEO can help you write a demand letter, or bring or defend a claim in Small Claims Court. Call 647-200-3526 or toll-free 888-519-2435, email info@neolegalservices.com, or book a free consultation.

Sources

Read next: Force Majeure and Frustration: When Events Make a Contract Impossible

General Ontario legal information, not legal advice for your matter, and reading it does not create a retainer. Sources checked 16 October 2026: check the current law, forms and dates before you act.

Photos from Unsplash: white folded printed paper on table · a man in a suit signing a document with a pen.

This article is general information for people in Ontario, not legal advice. Rules, forms and deadlines change, and every situation is different. Check the current rule or speak to a licensed legal professional before you act.

Not sure where you stand? A licensed paralegal can look at your documents and tell you your options.

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Law Society of Ontario — Barreau de l'Ontario
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