The standard Nederlandse Vereniging van Makelaars (NVM) residential purchase agreement provides that if one of the parties fails to comply with its obligations under the agreement, the other party may terminate (rescind) the contract. The defaulting party must first be given formal notice of default. Upon termination of the agreement, the defaulting party will generally forfeit a penalty of 10% of the purchase price.
A court may reduce (mitigate) a contractual penalty. According to established case law, this will only occur if enforcing the full penalty would lead to an excessive or unacceptable result. In making that assessment, the court considers, among other things, the relationship between the actual damage and the penalty, the content of the contract, and the specific circumstances of the case.
Traditionally, courts have been reluctant to mitigate penalties and would generally award the full amount. That said, there now appears to be a shift: courts are increasingly scrutinising such penalties more critically.
At the end of 2025, the Gerechtshof Arnhem-Leeuwarden reduced a contractual penalty to zero.
In November 2023, the parties entered into a purchase agreement for a residential property for €424,700. The buyer had included a financing contingency and sought to terminate the agreement when financing could not be secured. The seller did not accept this, arguing that the condition had not been invoked correctly. The seller subsequently terminated the agreement and claimed the contractual penalty of 10%.
The Court of Appeal established that the seller sold the property to a third party in March 2024 for €428,000—€5,300 more than the originally agreed purchase price. The court interpreted the buyer’s argument as meaning that the seller had suffered no loss as a result of the failed transaction, and that this should lead to mitigation of the penalty.
The court agreed. It noted that this was a purchase agreement between private individuals involving a standard clause, with no indication that it had been negotiated. In response to the buyer’s argument that no damage had been suffered, the seller failed to demonstrate that the claimed penalty was proportionate to any loss incurred as a result of the termination.
Furthermore, there was no indication that the penalty had been invoked to incentivise the buyer to perform its obligations—something which might have weighed against mitigation. On the contrary, the seller immediately terminated the agreement and claimed the penalty.
Taking all of this into account—including the fact that the buyer had offered to proceed with the purchase and the seller declined—the court found sufficient grounds to reduce the penalty to zero.
The Gerechtshof ’s-Hertogenbosch reduced a contractual penalty in 2022 to the actual damages suffered (rounded to approximately 1% of the purchase price).
The case concerned the purchase of a residential property for a price of €790,000. The parties had agreed on a financing contingency.
The District Court had ruled that the buyer had wrongly relied on the suspensive condition and ordered the buyer to pay the contractual penalty of 10% of the purchase price.
On appeal, the Court of Appeal agreed that the buyer could not invoke the financing condition and that a contractual penalty was therefore due. However, it found grounds to mitigate the penalty.
The court considered it important that the actual damages were significantly lower than the claimed contractual penalty, resulting in a clear disproportion between the two. In addition, the property had been resold shortly after termination at a higher price. The court calculated the actual damages at €7,810.40 and reduced the penalty to that amount.
In a case heard last year before the District Court of Gelderland, the following situation arose.
The buyer purchased a property for €600,000. According to the court, the buyer invoked the financing contingency too late.
Because the buyer did not proceed with the purchase, the sellers subsequently terminated the agreement.
The court reduced the contractual penalty to €10,000. It found that there was a significant discrepancy between the contractual penalty of €60,000 and the actual damage suffered. Full enforcement of the penalty clause would therefore lead to an excessive and unacceptable outcome.
Please feel free to contact Per van der Kooi, Attorney at law specialized in Real Estate & Government law.
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