Penalty clauses (smluvní pokuta in Czech law) are common in contracts for work. They’re meant to ensure performance — especially when timing, quality or cooperation are essential. But when poorly drafted, they can backfire.

A penalty clause is a pre-agreed sum that one party pays the other for breach — typically for late delivery, substandard work, or failure to hand over the project properly. The benefit? You don’t have to prove damages.

That’s great — but it’s easy to go too far.

Either the penalty is so low it’s meaningless, or so high it’s unenforceable.

To be valid:

• The amount must be reasonable compared to the value of the contract and the breach.

• It must be specific — vague terms like “adequate amount” don’t work.

• The clause must clearly state what triggers the penalty.

❗ Common mistakes:

• Only punishing one party — usually the contractor — without mutual protections.

• Combining penalty with damages without express agreement (Czech law allows it, but only if clearly stated).

• Excessive penalties for minor issues — which courts may reduce or ignore.

On the other hand, if there’s no penalty clause at all, your only option is a standard damages claim — which means evidence, expert witnesses, and time.

A well-drafted penalty clause is a simple but powerful tool. If you’re unsure whether the one in your contract protects or endangers you, I’ll help you assess it — or write one that works.