A contractual penalty can now be included in the lease agreement, but it must be reasonable

There is increased protection for the tenant in a lease of an apartment, as the tenant is traditionally considered the weaker party in the lease. Therefore, the Civil Code has so far expressly prohibited the tenancy agreement from containing contractual penalties. An amendment to this law effective from 1 July this year puts an end to this prohibition. However, this does not mean that the landlord can include contractual penalties in the contract without any limits. So, when can a penalty be claimed and when not?

The Civil Code contains a number of provisions that protect tenants of apartments. One of them used to say that provisions of the contract that require the tenant to pay a contractual penalty are disregarded. Therefore, if the lease agreement contained a contractual penalty, such an arrangement was invalid and the tenant did not have to pay it. As regards the tenant’s payment obligations, in addition to the security deposit, rent and service charges, the tenant could only be required to pay statutory default interest or penalties provided for by law.

An amendment to the Civil Code effective from 1 July 2020 removes the prohibition on contractual penalties in the lease agreement. However, this does not mean that the landlord can impose a contractual penalty on the tenant without any restrictions. “It is not possible to impose unreasonable obligations on the tenant and therefore it is not possible to demand an unreasonable contractual penalty,” explains Eduarda Hekšová, director of the consumer organisation dTest.

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The most common contractual fines encountered by dTest’s consumer advisers include those for damaging the flat, failing to paint it at the end of the tenancy or for delaying handing it back to the landlord. Previously, dTest advised that the tenant should not pay the penalty, citing a statutory provision prohibiting it. However, it will be more complicated now. It will be necessary to examine whether the penalty is permissible in the particular case and also whether it is reasonable in amount.

For example, a contractual penalty for not painting a flat may or may not be reasonable. It depends on the specific situation. “If the tenant has not changed the colour of the paintwork or the walls are only normally worn, the tenant cannot be required to paint the flat and therefore cannot be required to pay a contractual penalty for breach of this obligation,” explains Eduarda Hekšová: “In a situation where the landlord may require the apartment to be redecorated because the tenant has changed the colour of the decoration or the condition of the decoration at the end of the lease does not correspond to normal wear and tear, it is necessary to further examine the reasonableness of the amount of the contractual penalty. It should be approximately the cost of redecorating the flat, otherwise it is unreasonable and the tenant does not have to pay it.”

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The amount of the contractual penalty is also limited by other restrictions set by law. The contractual penalty together with the security deposit cannot exceed three times the monthly rent.

It should also be remembered that if the breach of the tenant’s obligation to which the contractual penalty is linked occurred before the end of June this year, the tenant is not obliged to pay the contractual penalty. However, if the right to the contractual penalty arose after that date, the tenant will have to pay it if the amount is reasonable,” concludes Eduarda Hekšová.