The situation: A shop tenant is a week late vacating, and the landlord demands a contract penalty equal to six months' rent.
Applicable law: The Civil Code allows agreed liquidated damages, but if they are 'excessively higher' than the actual loss, the aggrieved party may ask a court or arbitral body to reduce them toward the real loss (exceeding the loss by more than about 30% is treated as excessive). They may also be raised if far below the harm.
Outcome: The court assessed the actual loss (a week's rent and some costs) and cut the penalty to a reasonable sum instead of six months.
📄 Contracts · Awareness case
An Excessive Penalty Clause — The Court Trims It · Yalla China
🤝 Governing law: 民法典（违约金）/ Civil Code (Liquidated Damages)
Is a penalty clause enforced no matter how excessive?
Illustrative, general educational examples — not real specific facts and not legal advice; for awareness only. For an actual situation, consult a licensed lawyer.
🎓 The lesson / takeaway
Lesson: A big number in a contract isn't sacred. Penalties track actual loss, so don't be scared by inflated figures — and don't rely on them either.
🕒 Updated: 16 March 2026