A Penalty for Each Day of Delay

A German construction contract can tie the builder to the completion date with a Vertragsstrafe, a contractual penalty. Under Section 339 of the Civil Code, the penalty is incurred as soon as the debtor is in default. In a case decided by the Federal Court of Justice in February 2024, the clause set 0.2 percent of the contract sum for every working day of delay, up to 5 percent in total. The court had held in 2003 that a penalty of 5 percent of the contract sum is just about permissible. In 2024 it struck down the clause for another reason. The sum on which the penalty was calculated was only provisional.

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