The Delivery Delay Clause in Residential Construction Contracts: Consumer Protection in Cyprus and Europe

By Giorgos Kazoleas, LL.M., Lawyer, Managing Partner at Legal Experts Cyprus

The purchase or construction of a new residence is one of the most significant financial and personal decisions a consumer can make. Residential construction contracts or agreements for the sale of property under construction are a crucial and defining element of the entire process, as certain terms they may contain can be detrimental to the buyer.


One of the most critical aspects is the contractual delivery time of the project and the provision for delay, through the so-called delivery delay clause.

The Delivery Delay Clause: Its Role and Legal Nature

The delivery delay clause (also known as a penalty clause in the event of default) is a term usually included in the contract that specifies a predetermined compensation amount that the contractor or seller must pay to the buyer for every day, week, or month of delay beyond the agreed delivery date.

The purpose of the clause is twofold:

-Compensatory: It aims to cover, even summarily, the damage suffered by the buyer due to the delay (e.g., rent costs, furniture storage expenses).

-Deterrent: It functions as an incentive for the contractor or seller to complete the project on time.

Typical and frequent examples of abusive behaviour by the contractor or seller occur when:

  • They set a low compensation for each month of delay, e.g., €300 when the buyer is renting a home with a monthly rent of €700.
  • They cite reasons for the delay that involve the liability of third parties (e.g., suppliers or subcontractors) to justify the delay as non-attributable to them, thereby attempting to avoid the application of the delay clause.

In Cypriot Law, delay clauses, particularly in standard-form contracts (where there was no individual negotiation), are reviewed based on the legislation concerning Unfair Terms in Consumer Contracts. If the amount of the clause is disproportionately low, or if the contractor has the right to unilaterally extend the delivery time under vague terms, the clause or the relevant term may be deemed unfair and, consequently, void.

Consumer Rights in Cyprus and Europe

The legal framework for the protection of the property buyer, who is typically considered a consumer, is reinforced by both national (Cypriot) and European legislation.

Cypriot Law and Consumer Protection

In Cyprus, the main pieces of legislation are the Law on Certain Aspects of Contracts for the Sale of Immovable Property and the Law on Unfair Terms in Consumer Contracts.

Review of Unfairness: The Consumer Protection Service (CPS) and the Courts have the power to review the terms of pre-drafted construction contracts. Terms that allow the supplier (contractor/seller) to unilaterally extend the delivery deadline without reasonable cause or to be exempted from liability for delay without justification may be deemed void as unfair.

Protection based on Contract Law: In case of a delay, the consumer has, beyond the contractual clause, the general right to compensation under contract law for the actual damage suffered (e.g., increased housing costs), provided they can prove the contractor's fault.

Right to Information: The consumer has the right to receive clear and legible information about the contract terms before signing the agreement, including the delivery date and the delay clause.

European Law: The Unfair Terms Directive

European Directive 93/13/EEC on Unfair Terms in Consumer Contracts (which has been incorporated into Cypriot law) constitutes the foundation of this protection:

General Principle: A term in a contract that has not been individually negotiated is considered unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations to the detriment of the consumer.

Indicative List of Unfair Terms: The Directive includes an indicative list, covering, among others, terms that:

  • Allow the supplier to unilaterally extend the deadline for delivery.
  • Provide for disproportionately low compensation (delay clause) for the consumer in case of non-performance or delay by the supplier.

Key Principles from the CJEU Case Law

The decisions of the Court of Justice of the European Union (CJEU) have established the following critical points:

1. Ex Officio Review of Unfairness

The CJEU has repeatedly stressed (e.g., in case C-415/11, Aziz) that the national court is obliged to automatically (ex officio) examine the unfair nature of a contractual term, even if the consumer has not explicitly invoked it. This means that a Cypriot Court, when examining a delay clause, must determine on its own whether it is unfair.

2. The Role of the Disproportionate Penalty Clause

If a delay clause (penalty clause) is disproportionately or excessively small in relation to the actual damage the consumer may suffer, or if it restricts the contractor's liability, it may be deemed unfair.

Generally, a clause is considered unfair if it creates a significant imbalance in the parties' rights and obligations, to the detriment of the consumer, in breach of the requirement of good faith.

3. Preservation of the Contract and Neutralisation of the Clause

The CJEU case law (e.g., in case C-484/08, Pénzügyi Lízing) states that:

  • When a term is deemed unfair, the general principle is that it shall not apply, but the rest of the contract remains binding, provided that this is possible.
  • The national court cannot modify the unfair term (e.g., increase the amount of the clause) to make it fair, but must simply neutralise it (i.e., not apply it).

Analogous Application of CJEU Rulings to Construction Contracts

Although CJEU decisions often concern credit agreements, the principles apply fully to residential construction contracts and property sale agreements, particularly regarding terms that:

Allow Unilateral Extension: Terms that allow the contractor to extend the delivery deadline at their discretion or based on vague criteria, without the consumer having a corresponding ability or compensation, are considered potentially unfair.

Provide for Unequal Treatment: Where the contract provides for a high penalty clause against the consumer in case of payment delay, but extremely low or no compensation for the consumer in case of delay in the project delivery by the contractor.

Therefore, the CJEU case law reinforces the national judge's role as the consumer's protector and necessitates a strict review of delay clauses in construction contracts.

Conclusion

The delivery delay clause is a crucial tool for protecting the home buyer. However, its effectiveness depends on its content. Despite the protective legal framework, it is advised to avoid long and costly judicial proceedings through prevention.

It's recommended that consumers seek legal advice and guidance before signing the construction contract to ensure that:

  • A clearly defined delivery date exists.
  • The delay clause is reasonable and compensatory.
  • The terms for extending the delivery time are restrictive and require documented justification (e.g., force majeure).
*Giorgos Kazoleas is Lawyer, qualified both in Cypriot & Greek Law, Founding Manager at "Legal Experts Cyprus" / email: gkazoleas@legalexpertscy.com / tel: +357 22507666 / www.legalexpertscy.com

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