IN A CONTRACT OF SALE regarding immovable property, either off plan or under construction, there is usually a term stating that the purchaser is entitled to a specific amount of money as monthly compensation in the case of late delivery of the sold property.
This term, however, is considered as a penalty clause and it does not qualify the purchaser to demand the stated – agreed amount. In the case of late delivery, the purchaser is entitled to demand compensation equal to the real loss and damage he has suffered due to the loss of the use of the property, which is usually equivalent to its rental value. A term of this nature that predetermines the amount of compensation is regarded as a penalty clause and is ignored by the law. The court cannot judge how much damage has been suffered by the innocent party due to the violation of the contract by the vendor. It is necessary for the purchaser to present the court with reliable and accepted evidence by an expert property valuer to prove the real loss and damage he has suffered. In the absence of such evidence, the court will only award nominal damages to the innocent party, which is often minor, in the region of £5 to £10.
Therefore, specifying the damage in advance on the contract of sale is not binding and only serves as a guide for the maximum compensation that can be awarded. Failing to deliver a property at the agreed time gives the right to the purchaser to claim from the vendor the rental value of the property and any other consequential loss or damage he has suffered. This constitutes the legal measure for the compensation the purchaser is entitled to in the case of delays. In this respect, the purchaser must appoint either an expert property valuer or secure other acceptable evidence to prove the rental value of the property for the period of the delay.
The law states that when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named, or, as the case may be, the penalty stipulated for.
The Supreme Court of Cyprus (McGregor on damages) has decided that the standard measure of compensation is the value of the use of the property, generally regarded as the rental value for the period between the time agreed for the completion of the property and the actual delivery. The issue is analysed thoroughly in a decision issued in 2001, where the appellant had a proprietary right over a property by virtue of a registration certificate for renting premises on a long term lease agreement. He proceeded with the sale and transfer of his right through a sale contract which provided for the price to be paid in installments on fixed dates. There was a term stating that the premises were to be evacuated and delivered to the purchaser simultaneously with the payment of the last installment. Although the sale price was paid and discharged, neither the evacuation nor the delivery of the premises was made, but the property was transferred six months later.
The purchaser filed a lawsuit claiming that the delayed delivery of the premises, in violation of the agreement between her and the vendor, had caused her damages. Therefore, she claimed the amount of £37,800 as compensation for the delay in the delivery of the premises for the total of 189 days and which, according to the agreement in question, was giving her the right to claim the agreed compensation of £200 per day. The court awarded her £15,000 for compensation, meaning £9,000 as compensation for the damage she had suffered due to the delay in the delivery of the premises and £6,000 as an additional amount deemed as reasonable compensation. In this case, the Court reached the conclusion that the amount of £200 per day, as provided in the agreement in question, constituted an agreed compensation and not a penalty clause.
On appeal, the Supreme Court of Cyprus put the issue as follows: In view of the failure to deliver the premises in the agreed time, the rental value of the property constitutes a legal measure in determining the compensation owing to the delay in the delivery of the premises, thus violating the contract. Therefore, the Court of First Instance has correctly awarded the above-mentioned amount of £9.000. This was the only damage that the purchaser was able to prove and the only one she was entitled to, according to the authorities. Therefore, the adjudication of £6,000 as additional compensation, which was not verified, was wrongly judged and it was overlooked.
Based on the above, a term in a contract of sale predetermining the measure of damages is not valid by the law. The measure of compensation is the real loss of the purchaser and it is normally equivalent to the rental value of the property.
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