When must I legally accept a product return or exchange?

By On Your Terms co-founder Claire Bodle
Dec 2023

There are some great business reasons you might want to be generous with your product returns, refunds and exchanges policy, including creating a great customer experience or encouraging customers to purchase with confidence. This blog will help you understand when you’re legally required to accept a return or exchange and the type of remedy you need to provide your customer, so that you can make an informed decision on the return and exchange policy that works best for your business.

Customer changes their mind

If a customer returns a product because they have changed their mind (not because of any issues or faults with the product), you’re not required under New Zealand law to accept their return or provide a refund or exchange. This applies whether you’re an online retailer or selling your products through a physical store. Where you are required to accept a return (and provide a remedy) is where you provide a faulty product.

Promises under the Consumer Guarantees Act

The main rule to remember is that when you sell products to consumers (meaning to someone for household or personal use, not business use) in New Zealand, you automatically make certain promises about those products under the Consumer Guarantees Act 1993. These promises include that your product will:

• last for a reasonable time period
• be fit for the purpose commonly used
• match its description or any samples supplied
• be delivered at the agreed time (or if no period is agreed within a reasonable period)
• be provided for the agreed price (or a reasonable price if no price is agreed)
• be delivered in good condition and free of defects

If a product you sell fails to meet one of these promises, you MUST offer the customer a ‘remedy’. However, the type of remedy you need to provide depends on whether the product fault is substantial.

Fix, exchange or refund?

If the product fault is substantial or cannot be fixed within a reasonable period of time, your customer is entitled to ask for a refund. If the product fault is not substantial, you can decide whether to fix the product or provide a credit, exchange or refund. This might be an important difference as it may be much more affordable for you to fix the original product than provide a full refund.

A substantial fault is one where if the customer knew of the fault they wouldn’t have purchased the product, or the product is significantly different from the product description, demonstration or sample you’ve provided. For example, the following are likely to be considered a substantial fault (where the customer is entitled to a refund):

• purchase of a tent which, on its first use, has multiple leaks when it rains
• Purchase of a coffee machine where the demo video showed an automatic milk frother, and the purchased version has a manual milk frother

By contrast, the following are likely to be considered more minor faults which you can remedy by providing a fix, exchange or credit:

• purchase of a pair of shoes where the wrong colour is delivered
• purchase of a tent with three broken tent poles

Now that you know your legal obligations around product returns and exchanges, you can determine your business' product returns policy and ensure it is clearly communicated to your customers before they purchase your products. This will protect you from misunderstandings and disputes.

Key Points:

• You’re not required to accept a product return if a customer changes their mind
• You’re required to accept a product return or exchange if you break one of your promises under the Consumer Guarantees Act 1993
• If a product fault is substantial, your customer can require a full refund
• If the product fault is not substantial, you can choose to fix the product or provide an exchange or credit.

If you’re an online retailer, On Your Terms’ Online Sales Essentials Bundle contains customisable Product Terms of Sale, which include a returns, refunds and exchanges policy, as well as other essential information for your customers about how your business operates (such as delivery timeframes). This bundle also includes Website Terms of Use and Privacy Policy, and lots of helpful legal information – a start-up checklist for online businesses, a Guide to Consumer Law in New Zealand and a checklist for negotiating better terms with suppliers.

If you sell your products online and through a ‘bricks and mortar’ store, check out our Retail Sales Essentials bundle instead, which also contains a Policy for In-Store Sales to display in your retail store. If you only sell through a brick-and-mortar store, our Policies for In-Store Sales is also available to purchase separately.

On Your Terms helps kiwi businesses gain peace of mind, protect their revenue and ideas and build great business relationships. By providing free legal resources and affordable, convenient legal documents, we support businesses to succeed with confidence.