The District Court of The Hague recently heard a case concerning a property developer who had purchased a property without a financing clause but refused to take possession. The seller took the matter to court and applied for an interim order seeking payment of the contractual penalty. The judge in the interim proceedings awarded an advance payment of €40,000, despite a plea for mitigation on the grounds of financial setbacks.
What was the issue here?
In December 2024, a private seller and a property developer entered into a contract of sale for a property with a purchase price of €825,000. No financing clause had been included. The contract of sale contained the standard penalty clause, stipulating that, in the event of non-performance, the defaulting party would forfeit a penalty of 10 per cent of the purchase price. As security, the buyer was required to provide a bank guarantee for that amount.
The transfer of title was scheduled for 1 May 2025. The buyer did not take possession of the property on that date. At the buyer’s request, the transfer of title was postponed twice: first to 28 May 2025 and then to 17 July 2025. The parties set this out in an addendum, in which a delay compensation payment totalling €14,000 was also agreed. The buyer paid the first instalment of €5,000, but did not take possession of the property on the later dates either.
On 28 May 2025, the notary drew down the bank guarantee and €82,500 was paid into the escrow account. When the transfer failed to take place on 17 July 2025, the seller gave the buyer notice of default and claimed the contractual penalty and the compensation for delay. No amicable settlement was reached. In October 2025, the seller sold the property to a third party for a lower amount than the original purchase price. The seller requested the notary to proceed with the payment, but the notary did not comply with this request. The seller subsequently initiated summary proceedings.
Positions of the parties
In the summary proceedings, the seller claimed that the buyer should instruct the notary to pay him the security deposit of €82,500, as the buyer had culpably failed to fulfil his contractual obligations. In addition, he claimed the outstanding delay compensation of €7,000, extrajudicial costs and legal costs.
The buyer acknowledged having failed to fulfil its obligations but defended itself by invoking a reduction of the penalty under Article 6:94 of the Dutch Civil Code. It argued that, due to an unfortunate combination of circumstances, including the bankruptcy of an affiliated private limited company, it had run into financial difficulties through no fault of its own. As a novice property developer, the penalty would have far-reaching consequences for her, and she argued that there was a disproportion between the seller’s loss (over €25,000) and the full penalty of €82,500. She also contested the urgent need for the compensation for delay.
The court’s ruling
The judge in summary proceedings emphasised that restraint is required when granting a monetary claim in summary proceedings. It had to be assessed whether the claim was sufficiently plausible, whether an immediate interim order was required, and whether there was a risk of having to refund the amount should the court hearing the main action decide otherwise.
The buyer’s defence based on mitigation was largely rejected by the judge. The judge reiterated the established line of case law: mitigation is only applicable if the application of the penalty clause would, in the given circumstances, lead to an excessive and unacceptable result. In this regard, the court considers not only the relationship between the actual loss and the amount of the penalty, but also the nature of the contract, the content and purpose of the clause, and the circumstances under which it was invoked.
A penalty clause of 10 per cent is common in property purchase agreements and serves as an incentive to fulfil the core obligations. The buyer was a professional party who had purchased the property for business purposes without a financing clause. The fact that she claimed to be a novice property developer did not alter this. Even so, she could reasonably be expected to have been aware of the consequences of the penalty clause when entering into the contract. The fact that the breach was not due to unwillingness but to an unfortunate combination of circumstances does not in itself render the penalty excessive and therefore unacceptable. Moreover, the transfer had already been postponed twice at the buyer’s request; she subsequently failed to take possession of the property once again; and the property was ultimately sold for a lower price, which resulted in plausible damage to the seller.
The court ruled that, whilst there might be some grounds for mitigation, partly in view of the partially paid compensation for delay, it was not to be expected that, in proceedings on the merits, the amount would be reduced to less than €40,000. As no risk of restitution had been raised or demonstrated on the seller’s part, there was nothing to prevent the award of an advance payment of €40,000.
The court awarded the full amount of the compensation for delay, €7,000. The buyer had not put forward any substantive defence against the existence of that claim. Furthermore, the buyer’s director had stated at the hearing that the private limited company was technically insolvent. The seller could not be expected to await the outcome of proceedings on the merits for a claim that was established. The claim for commercial interest was partially dismissed because the seller had failed to demonstrate that the addendum concerned a commercial transaction; instead, ordinary statutory interest was awarded from the date of service of the summons.
Conclusion
This ruling once again underlines that courts are very reluctant to reduce contractual penalties in property transactions. A professional buyer who purchases a property without a financing clause runs a considerable risk if the obligations are not met.
Financial difficulties, disappointing business performance or lower actual losses suffered by the seller do not readily constitute grounds for mitigation and do not preclude the award of a substantial interim payment in summary proceedings.
Do you have any questions about a purchase agreement, a penalty clause or impending summary proceedings in a property matter? Please feel free to contact one of our solicitors. We would be happy to assist you.