10% penalty if a residential property sale falls through: how certain is the seller’s claim?

In a recent judgment (ECLI:NL:GHARL:2026:6289), the Arnhem-Leeuwarden Court of Appeal raised critical questions about the penalty clause that has for many years been included as standard in model purchase agreements, such as those used by the NVM. Under this clause, a party to a purchase agreement who fails to comply with its obligations is liable to pay a penalty amounting to 10% of the purchase price. This penalty therefore becomes payable if, for example, a seller fails to transfer the property on time or a buyer fails to pay the purchase price when due.

However, the Court of Appeal ruled that a seller is not automatically entitled to the full penalty and reduced the penalty payable by the buyers of a residential property from €38,000 to €10,000. In doing so, the Court also considered whether, in light of the tight housing market and rising house prices, the standard penalty clause in its current form is still appropriate.

What happened?

Two sisters, aged 21 and 25, purchased a residential property from a private seller for €380,000. They intended to finance the purchase in part with a gift from their parents, funded from the equity in their parents’ home. However, those funds did not become available in time, meaning that the transfer of the property could not take place.

The seller subsequently terminated the purchase agreement and claimed the contractual penalty of €38,000.

After the penalty had been paid out through the civil-law notary, the buyers brought proceedings seeking repayment of the amount. The District Court dismissed their claim. On appeal, they argued, among other things, that the penalty should be reduced.

The Court of Appeal’s decision

The Court of Appeal emphasised that a court may not simply reduce a contractual penalty. It may only do so if applying the penalty clause in the circumstances of the case would lead to an excessive and therefore unacceptable result. In assessing this, the actual loss suffered and the amount of the penalty are relevant, as are the other circumstances of the case.

In this case, both the seller and the buyers were private individuals, meaning that consumer law did not apply. The Court took into account that the seller ultimately sold the property for a higher price and, on balance, benefited financially. At the same time, the seller had experienced inconvenience and uncertainty and had been required to make considerable efforts to find a new buyer in time and arrange bridging finance.

The Court also considered the significant financial consequences of the penalty for the young buyers, who were still students and were at a stage in their lives in which they were expected to build a solid financial position while facing rapidly rising living costs and housing expenses.

Taking all these circumstances into account, the Court considered that awarding the full penalty would go too far. At the same time, it noted that reducing the penalty too substantially would undermine the purpose of the penalty clause. The Court therefore reduced the penalty to €10,000, equivalent to 2.63% of the purchase price.

Is the standard penalty still appropriate for today’s housing market?

Notably, the Court of Appeal questioned the standard percentage of 10%. According to the Court, this percentage dates from a time when residential properties cost roughly half as much and generally took longer to sell. In the overheated housing market at the time of the dispute, in 2023, a property could often be resold relatively quickly following termination of a purchase agreement, and not infrequently at a higher price.

The Court therefore identified a shift in generally accepted views regarding the reasonableness of the amount of this standard penalty clause, which has remained unchanged in the model purchase agreement for decades. In that context, the Court also took into account that the buyers were private individuals who had not negotiated the clause.

What does this mean in practice?

This judgment does not mean that the standard 10% penalty will no longer apply. The specific circumstances of each case remain decisive, and the penalty continues to serve as an incentive to perform the agreement, even where little or no actual loss has been suffered. The Court also noted that the clause may once again be more appropriate if housing market conditions change. In addition, a court may be less inclined to reduce a penalty where the buyer is a commercial party.

Nevertheless, this judgment demonstrates that a standard contractual clause does not guarantee payment of the full agreed penalty. A penalty that may appear straightforward on paper can therefore be substantially reduced in practice.

On the one hand, this is understandable: residential properties have become considerably more expensive and, in many cases, can be resold more easily. On the other hand, incomes have also increased, albeit less rapidly, and buyers remain obliged to comply with the agreements they enter into under a purchase agreement. After all, the 10% penalty was agreed for a reason: to serve as an incentive for proper performance.

If there is indeed a shift in generally accepted views regarding the reasonableness of the standard penalty clause, amending the clause itself may be preferable to leaving it to the courts to reduce the penalty on a case-by-case basis. In that respect, the initiative lies primarily with the NVM and other organisations responsible for drafting model purchase agreements.

Tips for sellers

In the meantime, sellers would be well advised to minimise the risk of a court reducing the penalty. That risk cannot be excluded entirely: a clause excluding the court’s statutory power to reduce a contractual penalty is void.

However, a seller can strengthen its position by genuinely negotiating the penalty, recording the reasons for the amount agreed and tailoring the sanction to the seriousness of the breach. After all, the Court took into account that the clause in this case was a standard provision that had not been negotiated and found that there was a disproportion between the seller’s loss and the penalty that had become payable.

Where the buyer is in breach of the agreement, the seller should also carefully document the actual losses and costs incurred, such as additional financing costs and the costs associated with reselling the property. This helps sellers counter an argument that no loss was suffered as a result of the buyer’s breach, which is particularly relevant if the property is subsequently sold at a higher price.

Finally, it is important to consider whether the buyer is a private individual or a professional party. Where a professional seller sells to a consumer, the standard penalty clause must be assessed for fairness under consumer law. An unfair term in a consumer contract that has not been individually negotiated may be subject to annulment.