Contractual penalties of up to 210 pct of the rent are too high

In a judgement on 25th November 2016 (file no.: V CSK 123/16) the Supreme Court decided that a landlord may not impose on a tenant a contractual penalty amounting to 210 pct of the monthly rent, because such a fine is excessive and therefore in breach of Article 484 § 2 of the Civil Code.

The ruling was made on a case regarding the termination of a lease agreement of a restaurant premises. The parties decided that in the event of the failure of the tenant to return the premises after the termination of the lease agreement, the landlord would have the right to request the tenant pay a contractual penalty of 7 pct of the monthly rent for each day that the premises was not returned (which on a monthly basis amounts to 210 pct of the rent). After the tenant failed to pay the rent for an extended period of time, the landlord decided to terminate the contract. The tenant, however, failed to return the premises so the landlord demanded the tenant pay the contractual penalty.

The above ruling of the Supreme Court is significant when agreeing on a contractual penalty equivalent to two months of rent. The tenant may request the landlord lower such a contractual penalty and is worth landlords considering provisions for such lower contractual penalties since tenants may be able to reduce them anyway by legal means in the future.