Legal consultation for adjusting excessive penalty clauses in rental agreements.

Law firm Veat received a request from a small-to-medium enterprise A (hereinafter referred to as the “client”) to consult on adjusting an unfair penalty clause in a rental agreement.

The client wanted to terminate a specific rental agreement prematurely, and the rental agreement contained a penalty clause that required the client to pay an excessively large amount if they terminated the contract. The client requested Law firm Veat to advise whether they could argue the invalidity of the penalty clause based on the Standard Clause Act and whether there was room for adjustment.

Law firm Veat reviewed the validity of the penalty clause in the rental agreement and, based on the possibility of arguing invalidity under the Standard Clause Act, sent a legal notice to re-adjust and renegotiate the penalty to a reasonable level as a measure before proceeding to litigation or dispute.

Unfair Penalty Clause, Fairness as defined by the Standard Clause Act

The Standard Clause Act is a law that protects consumers by regulating unfair clauses within contracts. Specifically, Article 6, Paragraphs 1 and 2, and Article 8 of the Standard Clause Act deem clauses that are unfairly disadvantageous to the client as invalid. This includes clauses that impose an excessively heavy delay penalty or liability on the client. It means that penalty clauses in contracts may be legally ineffective if they are too harsh on the client.

Based on this legal basis, when terminating a rental agreement, if the penalty specified in the contract is deemed excessive, instead of immediately filing a lawsuit, you can first attempt negotiation with the other party through a legal notice. A legal notice is a valid means of formally conveying your position to the other party in a contractual relationship, used to remind them of their legal obligations and prompt negotiation.

In response to the client’s request, Law firm Veat drafted a legal notice based on the illegality of the penalty clause under the Standard Clause Act to find a reasonable solution before the dispute escalated, notified that the penalty clause of the contract may violate the Standard Clause Act, and requested adjustment to a reasonable level.

Because legal disputes can take a significant amount of time and expense, it is efficient to negotiate adjustments at a reasonable level beforehand, explain the need for penalty adjustment under the Standard Clause Act, and send a legal notice requesting a reasonable penalty adjustment based on this to prevent disputes through professional legal review to protect against unfair clauses.

Law firm Veat is rapidly and efficiently resolving the legal problems faced by clients based on its abundant experience with the Standard Clause Act. Based on a deep understanding of the detailed provisions of the Standard Clause Act, we quickly identify unfair clauses within contracts and develop countermeasures.

The cost of litigation due to contract termination or penalties, which is frequently faced by startups and venture companies, is very large. Law firm Veat considers this situation and utilizes negotiation strategies through legal notices to reduce unnecessary costs and provide clients with prompt legal advice, protecting the client’s interests.

If you need regular legal advice regarding various corporate legal issues that may arise in venture companies and startups, please refer to the information below and contact Law firm Veat.

Thank you.
Law firm Veat.