COVID Cancellations: Can Government Guidelines Solve the Refund Debate?

TL;DR

What are the rules for accommodation refunds due to social distancing measures?

Hospitality Law with Attorney Song Ji-eun

01. COVID Cancellations: Can Government Guidelines Solve the Refund Debate?

Writer: Attorney Song Ji-eun

Editor: ONDA Manager Ko Ji-hye

As the government changes social distancing rules every two weeks, hosts often face confusion when guests request refunds due to policy changes. What laws apply? Are they binding? Let's clarify the rules around accommodation refunds during COVID restrictions.

If you have a separate agreement with the consumer — meaning your property has its own cancellation policy — follow that contract. But if you don't, things get murky.

First, let's look at the Consumer Dispute Resolution Standards.

Text and table describing cancellation policies

If a disaster is declared in the accommodation area after booking, or if social distancing escalates to Level 2 or 2.5 making it difficult to fulfill the contract, you must allow reservation changes without penalty or reduce cancellation fees by 50% if the guest cancels.

If administrative orders close facilities, a special disaster zone is declared, or distancing reaches Level 3, you must allow penalty-free changes or full refunds. Key point: the disaster or distancing level change must occur after the booking is made.

However, the Consumer Dispute Resolution Standards are consensus and recommendation criteria from the Fair Trade Commission under Article 16 of the Framework Act on Consumers — they're not legally binding.

That said, these standards do serve as a benchmark for determining unfair contract terms under the Act on the Regulation of Terms and Conditions. So even if you draft your own cancellation policy, it shouldn't deviate significantly from the Consumer Dispute Resolution Standards to avoid being classified as unfair.

If you have no property-specific refund policy and don't follow the Consumer Dispute Resolution Standards, guests can file a complaint with the Korea Consumer Agency. The agency will mediate between both parties. If mediation succeeds, it has the force of a court settlement. If not, the dispute goes to litigation.

So if you want to avoid relying on the Consumer Dispute Resolution Standards, it's better to draft a separate contract with guests. But unlike the non-binding Standards, there's another law to consider: the Act on Consumer Protection in Electronic Commerce, etc. (hereafter, "E-Commerce Act").

The E-Commerce Act gives consumers who contract with online sellers the right to cancel within 7 days of purchase — even for simple change of mind. "Online sales" means selling goods or services via mail, telecommunications, etc. Bookings made through your website or app fall under this.

Cancellation isn't allowed if the consumer caused damage or loss to the goods, or if time has passed making resale difficult due to significant value depreciation — but accommodation bookings generally don't fall into these exceptions.

When you have a booking contract with guests

To sum up: when drafting a contract with guests, 1. Include the E-Commerce Act provision allowing penalty-free cancellation within 7 days of booking, and 2. Don't deviate significantly from the Consumer Dispute Resolution Standards (you can tilt slightly in your favor, but major guest disadvantages violate the Act on the Regulation of Terms and Conditions).

Also, cancellation fees and refund timelines are material contract terms. Under the Act on the Regulation of Terms and Conditions, businesses must explain important terms so customers understand them. Therefore, separate these terms into a distinct section and ensure guests acknowledge and agree to them during booking.

If you have no separate booking contract

Without a contract: 1. Under the mandatory E-Commerce Act, bookings can be canceled penalty-free within 7 days, and 2. Absent a contract, disputes will follow the Consumer Dispute Resolution Standards. So depending on distancing levels, you may face reduced or waived cancellation fees and full refunds.

We understand both sides — guests forced to cancel due to health restrictions, and hosts burdened by mounting cancellations. We hope the government soon introduces measures that support both parties.

Four-line summary

If you have your own refund policy — follow that policy.
If you don't have your own refund policy — follow the Consumer Dispute Resolution Standards.
The Consumer Dispute Resolution Standards are consensus and recommendation criteria from the Fair Trade Commission under the Framework Act on Consumers — they're not mandatory.
However, if you have no property policy and don't follow the Standards, guests can file a complaint with the Korea Consumer Agency.