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How To Avoid (and Handle) Cancellations from Vacation Rental Guests
The best way to avoid a cancellation: Don't book a reservation without having money in hand
As owners, cancellations can be one of our most dreaded situations – especially the last-minute kind. Your first reaction might be out of anger or frustration, since you can't just fill your vacancies with walk-ups, after all. However, it's important to recognize that these things will happen at some time or another, and you need to be prepared to deal with them.
If you don't plan ahead, guest cancellations can be frustrating, overwhelming, and downright awkward – but they don't have to be. With a sound cancellation policy and preventative measures in place, you can handle potential cancellations with ease – or even avoid them altogether.
 Step 1: Don't Immediately Mark Your Calendar As Booked
A good rule of thumb is to never mark a reservation on your calendar until you have money in hand. To secure a booking, you should have both a legal and financial commitment from your renters. In other words, you need deposited money and a signed rental contract. If your guests can't commit right away, you should make it clear that you will not hold dates until you have a deposit. If they plan to pay by check, this will help to instill a sense of urgency for them to send their check ASAP.
Step 2: Accept Credit Cards
One of the best measures for preventing cancellations while “the check is in the mail” is to accept credit cards. Credit cards allow you to charge deposits and process payments instantly, eliminating that gray area when the check is (supposedly) in the mail. And let's face it, you get your money sooner! Just make sure to have the renter sign and fax back your rental agreement within 24 hours before charging the deposit. (You should never accept any payments without a signed copy of your rental agreement.) Be clear that the signed contract in addition to the deposit is what officially holds the reservation.
Step 3: Create a Cancellation Policy
One of the most important clauses in your rental agreement is your cancellation policy. You should clearly outline your penalties for cancelling within specific time frames, and progressively increase those penalties as the check-in date approaches. For example, many owners will require 60 days notice or more for cancellations to incur no penalty. Cancelling within 60 days of arrival, however, may require the prospective renter to forfeit the reservation deposit or any payments made up to that point.
If you have monthly or longer-term rentals, you might require even more notice for cancellations since it will take longer to re-book an extended stay. Your cancellation policy should also include penalties for any changes made to a reservation that would result in a shortened stay.
Keep in mind, though, that if you charge your renters a security deposit, you are not allowed to keep it without just cause. If, however, your rental agreement explicitly states that your deposit automatically converts to a security deposit upon final payment, you may be able to keep that money in the event of a cancellation. It all comes down to the nomenclature used in your rental agreement.
 Some people might also choose to impose a cancellation fee even when the cancellation occurs within the approved timeframe. This fee would be somewhere between $25 and $150, depending on the total amount of the rental, and would cover any administrative fees such as postage and credit card processing that you might have already incurred. Since you set the rules, you can make that figure anything you wish.
Bottom line: your cancellation policy needs to cover all your bases. Remember, you are not a big business, and your chances of re-renting a week grow exponentially lower as the date draws nearer. You can outline your cancellation policies however you see fit, but try not to make them so restrictive that your guests won't book in the first place.
Step 4: Encourage Guests to Purchase Travel Insurance
Some guests – especially those new to vacation rentals – might be nervous about your cancellation policy, especially if they are used to booking hotels with 24-hour cancellation windows. So, another method for giving your bookings some extra security and easing your renters' minds is to encourage them to purchase travel insurance. That way, if an emergency were to occur, they have additional recourse for cancelling their stay and potentially obtaining a refund.
 Travel insurance is usually reasonably priced (as low as 2 to 5% of the trip cost) and would be entirely up to your guests to research and purchase. It would be helpful, though, to include information in your rental agreement and perhaps in your early correspondence with renters. Although the insurance policies vary when it comes to “valid” reasons and amounts for reimbursement, your renters might find some comfort with this added protection. For more information, see our article on Travel Insurance.
Step 5: Cope with Your Conscience
Even with a clearly defined cancellation policy and all the preventative measures in place, when it comes down to an actual cancellation, your emotions can sometimes play a role in your decisions. If a guest wants to cancel because of rain, it's a little easier to stick to your cancellation policies than when a guest experiences something unexpected and unfortunate, like a death in the family or a serious illness. In that situation, many of us will grapple with the issue of sticking to our business judgment or giving in to a guilty conscience.
.jpg) This is why travel insurance can be so helpful – if your guests have purchased a policy, the refund decision is no longer in your hands and your guilty conscience is easily alleviated. If your guests did not heed your advice, though, this is where you fall into that sticky area that we'd all prefer not to be in.
There is really no right or wrong answer, and each situation really needs to be evaluated on a case-by-case basis. In general, it's best to have an honest conversation with your renters to determine both of your options. You'd be surprised how willing some people are to work out an arrangement.
No matter what you decide, it's generally good practice to refund someone's money if you're able to re-book the dates. It never hurts to build goodwill with renters that may book again with you sometime in the future. Or perhaps you can work out an arrangement for a partial refund. Read how one owner (Nadia) solved a cancellation problem:
Nadia rented her snowbird season (January – March) in April of the previous year for $1,000 per month + $200 security deposit. In November, these guests stayed at her property for a long weekend. Upon returning, the renters called Nadia and explained that although her home was beautiful and it was everything that she described, they decided to go to a totally different city for their 3-month stay.
Nadia's rental rules required her snowbirds to pay in full 60 days prior to their rental date, and her cancellation requirement for monthly rentals was 180 days. She had every right to keep their full payment (but not the deposit, since it was a security deposit).
Nadia explained to the renters that it would be very difficult to re-rent those dates since most snowbirds had secured their rentals by that point. The renters clearly understood her dilemma as well as the rental policies.
Together they came up with a great solution: Nadia agreed to do everything possible to try to re-rent those three months. One month passed and not a single renter called. When the renters and Nadia spoke next, the renters suggested that Nadia reduce the rental rate to $700 per month. She did not rent January, but did end up renting February and March. Nadia happily refunded the first snowbirds the $1,400 she received from the new renters. |
By working out an arrangement with the cancelled guests, Nadia was able to maintain a good relationship with the original renters while securing a new booking for her open dates. With a little effort and creativity, you might be able to work out options that will be favorable for everyone involved. Either way, it's always a good idea to have clear guidelines in place so you are prepared for any reservation changes in the future.
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What cancellation dilemmas have you experienced? How have you handled them?
“I have a very stiff cancellation policy included in the rental agreement for my managed condos: it's 20% of the total amount if cancelling earlier than 45 days before arrival, 50% if between 45 and 15, and 100% if within 15 days from arrival (unless re-rented, then a 50% partial refund). Payment schedule for the booking is generally at the same percentage and advance periods, to avoid actual refunds. In 2 years with 12 condos, I have received only 4 cancellation 'requests'. Because of the stiff cancellation fee, guests will undoubtedly think twice before cancelling. And when they still do cancel, it is most likely due to genuine extreme circumstances (death, serios illness, job loss, etc.). Without being obliged by the rental agreement to do this, I have always voluntarily offered a rebate value for the full cancellation fee, to be used to book same condo with us within 1 year after their cancelled dates. Further, they can transfer the rebate value to family or friend. In this way, even a cancelling guest is converted into a marketing tool for my condos, because without even having been here, they will only have good things to say about the property and its managment, and some will even try to resell their rebate value to others. And even if they are unable to resell, they will actually use it themselves, come down at a later date, and thank you eternally for the generous rebate offer and for the kind consideration during their most difficult times. All 4 of the above-mentioned cancellations have responded with enthusiasm despite their difficult situation, and one has actually used their rebate value already.” - Al, Aruba (HomeAway #179890, VRBO #182997)
“My cancellation policy is full refund minus $25 fee for >30days and no refund for <30 days. A guest wanted to cancel with 25 days notice due to a breakup with her vacation companion. I told her I couldn't refund her money. We agreed that I would try to rent the dates and I would refund any money I received. After not finding renters for her dates with only 10 days before her reservation she decided that she would use the dates anyway and did not want to cancel anymore. This I think is the worst situation because I had hours of extra work fielding multiple calls and negotioations with this woman and in the end she wasn't happy about the situation either.” - Martin, Mt. Hood, OR (VRBO #219862)
“We have a summer vacation rental home on a lake. This is the third summer we have rented this home. We rent by the week and have every summer week booked with 50% deposits and a signed contract by the February prior. A 60-day minimum notice cancellation policy and a $200 re-advertise fee has always been part of our contract. Last year we had a family cancel 10 days prior to their arrival. We require the balance of the rent 2 weeks prior to arrival so this family had paid in full. The renter had gotten a promotion and needed to cancel her vacation. We talked on the telephone and I explained the policy again. I agreed to refund in full less the $200 if the home could be rented in such a short period of time for the full amount. I also agreed to discount the rental fee the last few days and refund any rent amount I could get. If it could not be rented they would be out the $1300, which they completely understood. When I put it back on the website, it was grabbed immediately by some last minute vacationers (you gotta love em!). Because I did not need to put any effort into the new renters other than a full payment and contract request, when I received the check and contract, I refunded the money in full and did not charge the $200. I have since received referrals from the family that could not keep their vacation plans! My parents taught me from the earliest age, if you treat people right, they will do the same for you . I have found this to be true (most of the time.)” - Pat, Deer Lake in Boyne Falls, MI (HomeAway #164391, VRBO #125550)
“Make sure and charge enough for a deposit to hold a booking. I only asked $100 for a 28 day stay, and the people arrived a week early and were annoyed that I could not accommodate them. They moved into a motel near by - cancelling their stay at our vacation rental. I turned down many inquiries for that time period and have now lost that revenue. Another tip, keep all inquiries you get as I did not and could not reconnect with them to book.” - Cal, Vancouver Island, BC (VRBO)
“I had a group booked over the 4th of July and they canceled the week before when they discovered my clearly stated policy about charging extra for extra people. This rule regarding events and family gatherings conflicted with their plans to have a party. Because large groups and parties require extra work and logistics-planning due to plumbing capacity, garbage disposal and parking, this policy is not flexible. Big events or parties are also very risky because items get stolen and sometimes it is difficult to get the house back in shape before the next tenant. Basically, I prefer not to have large parties. This one property in the country with a septic is not set up for it. My cancellation policy was clear and I had recommended vacation insurance in the signed lease. I had only received $600 to finalize the booking and was owed over $1000 plus some additional for the security deposit (the $600 was not a security deposit). Extra charges for parties were also described in the lease and on my website.
I said the original group of 6 could come but the remainder had to be paid by the week, otherwise it was my view that they reneged on the lease. They would then forfeit the $600 they had already paid, and I am still out over 1000 for one of the busiest weekends of the summer. I have literally turned away dozens of other interested renters. They wanted the deposit back but I have refused because I thought the terms were well-described and they signed the lease.” –Tracey, Catskill/Hudson Valley (VRBO)
“In the 4 yrs. I have been renting, I have NEVER had to deal with so many cancellations as this year. Loss of jobs (tks to our great economy!) deaths, heart attacks, etc.. It was unbelievable. I have the same cancellation policy as Christine's book recommends. But it is SO MUCH work to get the rentals re-booked. It wore me out this year. I stayed strong in all situations....But I got burned in one. A good return tenant asked if she could pay the 1st payment late...after she received her tax return. I agreed as long as she could reassure me she would not cancel. She agreed. Being a return tenant and noting the shape of our economy I had no problems with this. We got burned in the end as she cancelled. Unfortunately, I probably will not be so lenient in the future with later payments. My stiff policies helped greatly, but most cancelled prior to their 60 days. So re-booking was just more work for me. I might rethink my policy for next year and charge some sort of fee for any cancellations to cover the amount of time I spend on the computer and phone re-booking my rentals.” - Shelley, Okaloosa Island, FL (HomeAway #152212, VRBO #57840, VacationRentals.com #19290)
“This is a suggestion regarding a comment in section 2 regarding accepting credit cards and faxing the rental agreement. I always mail the contract for credit card bookings as additional security that the renter is the cardholder. Since the card approval process is based upon the address and zip code, I have added security that the renter is the cardholder and will be located at the address given. (A fax can be sent to anyone anywhere....)” -Mike, York/Lancaster, PA (VRBO #186210)
“Just the usual - people book ahead in our area, because they travel here with their families, and finding replacement tenants with short notice tends to be hard. To handle this, I respond by gently cursing VRBO/HomeAway for not making the subject line (for inquiries) the requested dates - and by swearing I will be diligent about changing that before saving all e-mails from prospective tenants! Please consider this: there should be room for the tenant's name AND dates; it would be such a big help when wading through old requests!” -Deborah, Washington, DC (HomeAway #189511, VRBO #195426)
“I have noticed many fewer inquiries this year, and like others, those that inquire are much more finnicky these days. However, I have noticed many last minute cancellations, tenants changing at the last minute, etc. Those last minute tenants are always welcome, and of course, they pay on the spot, so a refundable deposit is not a practicality. I have handled these cancellations by charging a flat 20% nonrefundable deposit. The reservation gets confirmed with payment, usually by check, but credit cards and bank accounts are a seldom used option. The calendar reservation does not appear until I actually receive the check/payment (I give the tenant a week, and if I don't receive it, I start emailing and calling as a reminder. This seems to weed out those dreaming and those really planning a trip). I allow until the end of the calendar year to reuse the deposit without penalty. Interestingly enough, no one has reused a deposit to date. I think it is 'goodwill', and it shows willingness to have the customer always be 'right'. ” -John, San Carlos, Mexico (VRBO #125194)
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