Deposit or Holding Fee?

6a0133f3fc5805970b01b8d09a8f2e970c-320wiHow would you handle this situation?

A parent enrolled two children into a Minnesota family child care provider’s program and paid a two-week deposit for each child.

A week before the children were to start care, the parent called and said she was staying at her current daycare and wanted her deposit back.

The provider said that her deposit was to be used towards the children’s last two weeks in care and her contract required the parent to give her a two-week notice when the last two weeks would start. The parent is being persistent about wanting her money back.

Should the provider give the deposit back to the parent?

Unfortunately, the provider’s contract did not address what would happen in this situation when the parent never brought the child to care. This makes it difficult to determine whether the provider is entitled to keep the money.

Clearly the provider intended to keep this money if the parent never showed up, but this may not have been communicated to the parent. My advice to the provider was to keep the money since the provider can argue that this payment was to hold the spot open for the parent and that the parent didn’t give her a two-week notice.

How can this problem be avoided?

The use of the word “deposit” to describe this payment is a mistake because parents will think that they can get a deposit back. Call it a “nonrefundable holding fee.”

If you are going to apply the holding fee to the last two weeks of care, make it clear in your contract that this fee will only be applied to the last two weeks of care if the child is enrolled.

In my opinion, any payment made by a parent before enrolling the child that requires the provider to hold the spot for the parent should be treated as a holding fee and should not be applied to care after care begins.

This fee can be a flat rate ($100) or a percentage of your normal rate (25%, 50%, 100%). If the parent doesn’t want to pay a holding fee, you should not promise to hold open a spot.

If the parent wants to enroll her child on February 1st but says she can’t afford to pay the holding fee, here’s a suggestion:

Tell the parent you will continue to advertise to fill the space in your program.If you find another parent who wants to enroll their child before February 1st, you will call the first parent and tell her you will hold the spot, but only if you are paid something to do so. If you don’t find another parent before February 1st, you haven’t lost any money and the parent won’t have to pay.

How would you handle this same situation?

Tom Copeland –

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Contracts & Policies bookFor more information see my book Family Child Care Contracts & Policies.

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7 replies

  1. I state that their holding fee will be put towards they weekly rates. In the case that the child will not attend my daycare once their holding fee is paid, only 1/2 the holding fee will be refunded. The other 1/2 of the holding fee (plus the registration fee) is non-refundable.

  2. First thing I would do would be to change my wording of the “deposit” like suggested above. I think the term “holding fee”is appropriate. As far as the deposit, since the parent gave a two week deposit for each child, I would return half of what they gave me and keep the other half for holding the spots.

  3. In this particular situation I would consider the parents one week notice and refund only one week. On the contrary, I require a one month deposit to start care or to hold a spot. I also have it my policies that all fee’s paid are non-refundable. The deposit covers the last month of care, as I require a one month notice to terminate care.

  4. My contract states any and all money received when contract is signed is all non refundable.. PERIOD!!! I have them initial each page of the contract and also have them initial that they have a copy of the contract. It’s a done deal! End of subject. It also states that if/when their child leaves they must give WRITTEN notice. Their contract will be charged according to the agreement we both signed and believe it or not it’s been an issue but I WON! They need to read what they are signing off on I think.. Parents these day’s are to much in a hurry.. slow down and watch your kids grow is what I tell them. 🙂

  5. This happened to me this summer. In June a parent came interviewed and wanted to start the End of August. Thank you Mr. Copeland! I had your book and had nonrefundable deposit in my contract to hold a space. I had turned down several people to hold this space and the night before they were to start I got the call. They weren’t happy when I tried to explain. And of course those calls had all found other care.

  6. I find this similar situation with teachers. I contract all year long, with the stipulation a two week notice from either party to change the contract.
    A teacher will tell me in May that she will not continue care during summer while she is home with her child. I tell her that I cannot guarantee her spot in the Fall. She tells me to call her if someone else is interested until she returns. How do you enforce an entire year of payment?

  7. I experienced this situation not too long ago. A parent signed my contract which clearly stated the ‘deposit’ is non refundable and would be applied to the last 2 weeks of childcare. A month later the parent decided not to enroll her child and wanted her money back. I told her the contract she signed stated money was nonrefundable and that i was holding the spot for her child for a few months. She was not happy about that decision and said she would post negative things about my program since she was active in the community and involved in several parents’ groups. I stood my grounds but will take Mr. Copeland’s advice here and revise my contract to call it a ‘nonrefundable holding fee’.

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