Contractual penalty newly allowed in case of a lease of a flat

The amendment to the Czech Civil Code, which entered into force on July 1, 2020, is changing the provision regulating the so-called prohibited stipulations between the lessor and the lessee of a flat.

As the law reflects a special protection of the lessee satisfying his/her housing needs, any contractual penalty was explicitly prohibited until now and the only security to cover debts arising from the lease allowed was to agree the payment of a deposit.

The amendment to the Civil Code cancels the explicit ban of a contractual penalty and at the same time it sets a financial limit if the contractual penalty is agreed. From July, 1, 2020 it is possible to agree a deposit as well as a contractual penalty but in total together they may not exceed three times the monthly rent, whereas until now this limit was valid only for the deposit.

Considering both the facts that the contractual penalty can cover more duties arising from the lease to be fulfilled than the deposit and that the financial limit for the contractual penalty is set as a sum together with the deposit, it opens some space for calculations whether and how much to favour the contractual penalty over a deposit.