The revival of contractual penalties in apartment lease agreements?

Under the current legislation, a stipulation of an apartment lease agreement imposing a tenant’s obligation to pay a contractual penalty to the lessor shall not be taken into account.^[1] Therefore, it is now not possible to include such contractual penalty favouring the lessor in an apartment lease agreement. Nevertheless, the Government of the Czech Republic approved the draft amendment of the Civil Code on February 4, 2019, which proposes to newly allow the contracting parties to stipulate a contractual penalty in the cases of an apartment lease.^[2]

However, the tenant's and the lessor's right to arrange such contractual penalties shall not be limitless. The amendment proposes to enact that the sum of the agreed security (jistota) and of the contractual penalties shall not exceed three times the monthly rent.

We will deal with other novelties proposed by the amendment on our website, including changes in an area of statutory pre-emptive right or provisions on residential co-ownership.

The amendment was presented to the Chamber of Deputies of the Parliament of the Czech Republic for discussion on February 20, 2019 (amendment was assigned to the Committee on Constitutional and Legal Affairs for further deliberation during the so called first reading of the amendment on April 24, 2019) and is therefore at the very beginning of the legislative process. Hence, we may only speculate about the final wording of the amendment and whether it will be accepted at all. The expected date of effect of the amendment is, however, set for January 1, 2020.

^[1] Sec. 2239 of the Act No. 89/2012 Coll., Civil Code, as amended.

^[2] The wording of draft amendment is included in Parliamentary Print No. 411/0, in Czech language available here.