Didn't suffer any loss? A judge can reduce the contractual penalty!

Real estate purchase agreements typically include a penalty clause included, which stipulates that a party that fails to fulfill the terms of the purchase agreement (even after being given notice of default) is liable to pay a penalty of 10% of the purchase price. This is always the case when use is made of the NVM model sales contract whether it Amsterdam model sales contract.

Article 6:94 BW concerns the reduction of fines. Under that provision, the court may reduce the fine at the debtor’s request if reasonableness and fairness so require “apparently demands”. Although contractual fines in general not so fast be moderated; the Arnhem-Leeuwarden Court of Appeals did so last year (ECLI:NL:GHARL:2025:8621). The decisive factor in this regard was that the party seeking payment of the fine had not suffered any harm.

The fact that harm was suffered played a key role in reducing the fine

In that case, it had been agreed that the defaulting party would forfeit a penalty of 10% of the purchase price if the agreement were terminated. The seller terminated the purchase agreement because the buyer had funding reservation based on incorrect grounds would have invoked. The Court of Appeal, however, ruled that the seller could not claim the penalty because the termination of the agreement was based on an incorrect ground. More interesting, however, was what the Court of Appeal considered next. The Court of Appeal determined that even if the termination had been valid and the seller were therefore entitled to claim the penalty, it would be reduced to zero (€0) pursuant to Article 6:94 of the Dutch Civil Code.

The Court of Appeals explained its reasoning as follows:

“Pursuant to Article 6:94 of the Dutch Civil Code, the court has the authority to reduce a contractual penalty at the debtor’s request. According to established case law, a reduction may only be granted if equity clearly requires it. This standard implies that the court may exercise its authority to reduce the penalty only if the application of a penalty clause leads, under the given circumstances, to an excessive and therefore unacceptable result. In doing so, the court must consider not only the relationship between the actual damage and the amount of the penalty, but also the nature of the agreement, the content and purpose of the clause, and the circumstances under which it was invoked.”

The seller had already sold the property to a third party for a higher price, which meant that no damage ago. The court therefore ruled that, under the circumstances, reducing the fine to zero was the obvious course of action, since the seller had not suffered any loss.

A reduction in the fine is exceptional

The aforementioned ruling is quite exceptional. In general, it is unusual for a court to reduce contractual penalties. The Midden-Nederland District Court confirmed this in a recent ruling (ECLI:NL:RBMNE:2025:3070):

“The court understands that such a high fine always has an impact, but the basic principle here is that if the parties agree to such a fine, they are bound by it.”

In another ruling (ECLI:NL:RBNHO:2024:4404) With regard to the sale of homes, the North Holland District Court considers that the nature of the agreement, the content and purpose of the clause, and the circumstances under which it was invoked entail “”that the fine cannot be reduced lightly.".

Incidentally, the ruling by the Arnhem-Leeuwarden Court of Appeals discussed above also shows that a reduction is exceptional and that it is only possible when the fine amounts to a “leads to an excessive and therefore unacceptable result”.

Moderation is less likely when a fine serves as an incentive to comply

According to the North Holland District Court in the aforementioned ruling, a penalty clause is common in residential real estate purchase agreements. Furthermore, it serves as an incentive to fulfill the obligations under that agreement. This means that moderating the penalty contributes to legal certainty. Consequently, due restraint is warranted when granting a request to moderate the penalty.