Penalty clause
Contractual provision setting a fixed indemnity in case of breach of the sales agreement.
Full definition
A penalty clause is a provision included in the sales agreement that stipulates a fixed indemnity in case of default by either party. In Belgium, this indemnity is typically set at 10% of the sale price. If the buyer withdraws without a valid condition precedent, they lose their 10% deposit. If the seller withdraws, they must pay 10% of the price to the buyer. However, a Belgian judge may moderate a manifestly excessive penalty clause or reduce the amount if the actual damage is lower. This clause acts as a deterrent and secures the transaction for both parties.
Related terms
Sales agreement
Preliminary contract binding buyer and seller in a real estate transaction.
Purchase offer
Written proposal by which a prospective buyer commits to purchasing a property at a specified price.
Condition precedent
Clause in the sales agreement suspending the sale until a specific event occurs.