As a buyer, you should be aware of the protection that is available to you in the event of the late delivery of the immovable property you have purchased and also some of the things you need to avoid including in your contract.
It is not unusual to find that the contract of sale contains a clause that entitles the purchaser to a specified sum of money for compensation in the event of late delivery of the property, for example, a monthly rate of compensation. However, it should be noted that this does not always guarantee that the purchaser will in fact be paid this amount.
Where the parties agree that in the event of a breach of contract, for example, the immovable property not being delivered to the purchaser on the stated date, the party who is in breach will pay a specified sum of money, the Court must consider whether the fixed sum should be classified as a penalty clause which is irrecoverable or as liquidated damages which are recoverable, which is a question of law. When making the decision, the Court will have to take into account the terms and inherent circumstances of each particular contract. This will be judged at the time of making the contract, not at the time of the breach.
The essence of a penalty clause is a payment of money stipulated as ‘in terrorem of the offending parties’, meaning that the provision is meant to act as a method of ensuring that a person complies with the terms of the agreement through fear of the consequences of non-compliance. The essence of liquidated damages is a genuine estimate of the likely damage.
The clause will be enforceable if it does not appear to exceed a genuine attempt to estimate, in advance, the loss the wronged party was likely to suffer from the breach of obligation in question. It will be enforceable irrespective of the loss actually suffered. It can be concluded that the sum must be a genuine estimate of the damage. The term genuine has not yet been interpreted by the Courts, but it can be taken to mean a serious attempt to estimate losses, made in good faith, irrespective of how unreasonable it may appear to others or how unreasonable it may in fact be at the time of the actual breach.
If the sum stipulated is for an extravagant and unconscionable amount in comparison with the greatest loss that could conceivably be proven to have been occasioned by the breach, it is likely to be held by the Courts to be a penalty. There is a presumption that it is a penalty when a single lump sum is made payable by way of compensation upon the occurrence of one or more or all of several events, some of which may occasion serious, and others, maybe trivial events. However, this is a mere presumption and is not a written and enforced law.
It is important for a purchaser of immovable property to ensure that the clause is not open to post breach attack as a penal sanction. In taking the above considerations into account, the purchaser may wish to consider the inclusion of a graduated damages clause, which can be done with the assistance of a lawyer. This is a clause where the amount of compensation increases in proportion to the seriousness of the breach. In the case of immovable property, this could be a set amount per week for delay in the performance of the contract.
As a purchaser, the best method to use to protect yourself and your interests is to be able to provide the Court with evidence of the damage and real and substantial loss which has occurred and provide a means of proving that the amount stated was a genuine estimate at the time of making the contract. It is advisable to get this evidence from an expert property valuer as this will be accepted by the court as reliable, acceptable evidence.
The Supreme Court of Cyprus has considered the issue of compensation in cases of late delivery of property and concluded that;
“The normal measure of damages is the value of the use of the land, which will generally be taken as its rental value, for the period from the contractual time for completion to the date of actual completion” (Metallika Iraklis Michaelides Ltd v. G & C Exhaust Systems Ltd (Civ. Appeal 10355) 26 April 2007).
