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Contractual penalty in the contract: when is it valid?

Contractual penalties are meant to secure the performance of a contract, for example with late performance or a violation of a non-competition clause. Such clauses are in principle permissible but, in pre-formulated contracts (terms and conditions), are subject to review. Excessive penalties can be invalid.

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A contractual penalty obliges the debtor to pay a certain sum in the event of non-performance or breach of duty (§ 339 BGB). In individually negotiated contracts this is broadly permissible; the court can, however, reduce a disproportionately high penalty.
In terms and conditions, a contractual penalty for the case that the consumer does not perform the contract or performs late is impermissible (§ 309 Nr. 6 BGB). Such clauses toward consumers are invalid.

What you should do now

  1. 1

    1. Check the clause

    Look for what and in what amount the contractual penalty is provided.

  2. 2

    2. Terms and conditions or individual contract?

    Clarify whether the clause was pre-formulated (terms and conditions) or negotiated.

  3. 3

    3. Assess the amount

    Check whether the penalty is disproportionately high.

  4. 4

    4. Raise an objection

    Reject invalid or excessive contractual penalties in writing.

How to spot the scam

  • A contractual penalty in terms and conditions toward consumers is to be enforced.
  • The demanded sum is out of all proportion to the violation.
  • An excessive penalty is paid without examination.

Frequently asked questions

Are contractual penalties allowed?

In principle yes. A contractual penalty secures the contract performance (§ 339 BGB) and is largely permissible in individually negotiated contracts. If it is disproportionately high, the court can, on application, reduce it to an appropriate amount.

What applies in terms and conditions toward consumers?

Stricter. In general terms and conditions, a contractual penalty for the case that the consumer does not render the performance or does not render it on time or frees themselves from the contract is impermissible (§ 309 Nr. 6 BGB). Such clauses are invalid and need not be observed.

How do I fend off an excessive penalty?

Check whether the clause in terms and conditions is impermissible or the penalty disproportionately high, and reject the demand in writing and with reasons. Do not pay prematurely. With individually agreed but excessive penalties, a judicial reduction may come into consideration.

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General information for self-help, not legal advice (RDG). In case of a high loss or uncertainty: contact a consumer advice center or a lawyer.