Law Articles
2026-10-16
Law Articles
A Brief Analysis of the Grounds for Reducing Liquidated Damages for Delay in Performance under Pre-Sale Housing Contracts
【Zhong Yin Law Firm Partner Charlotte Wu / Attorney Yiju Wu】
charlotte.wu@zhongyinlawyer.com.tw
charlotte.wu@zhongyinlawyer.com.tw
I. Legal Nature of Pre-Sale Housing Contracts and Developers’ Liability for Delayed Handover
A pre-sale housing contract is a real estate sale and purchase agreement entered into between a developer and a purchaser before construction of the property has been completed. Under such a contract, the purchaser agrees to make installment payments, while the developer undertakes to complete construction, transfer title, and deliver the property to the purchaser upon completion. As performance may extend over several years, delays in construction frequently arise from factors such as labor and material shortages, rising construction costs, changes in government regulations, and natural disasters. Consequently, delayed handover is one of the most common sources of disputes involving pre-sale housing transactions.
From a legal perspective, a developer’s obligation to commence construction and obtain an occupancy permit within the contractual deadlines constitutes an obligation subject to a definite time for performance. Pursuant to Article 229, Paragraph 1 of the Civil Code of Taiwan (the “Civil Code”), the developer is in default upon expiration of the specified deadline. Under Article 231, Paragraph 1 of the Civil Code, the purchaser may claim damages arising from the delay. Where the delay is sufficiently serious, the purchaser may also, pursuant to Article 254 of the Civil Code, specify a reasonable period for the developer to perform its obligations by giving notice. If the developer fails to perform within that period, the purchaser may terminate the contract.
Pursuant to the authorization under Article 17, Paragraph 1 of the Consumer Protection Act, the Ministry of the Interior has promulgated the Mandatory and Prohibitory Provisions of Standard Form Contracts for Pre-Sale Housing Transactions (the “Mandatory and Prohibitory Provisions”). These provisions establish mandatory requirements governing pre-sale housing contracts. Point 12 requires the parties to specify the deadlines for commencement of construction and obtaining an occupancy permit. Such deadlines may be extended only in circumstances permitted under the applicable provisions, including force majeure events such as natural disasters and changes in government laws and regulations that are not attributable to the developer. Point 15 provides that, if the developer fails to notify the purchaser to proceed with the handover within six months after obtaining the occupancy permit, the developer must pay default interest to the purchaser for each day of delay, calculated at a simple interest rate of 0.05% per day on the amounts already paid toward the purchase price of the land and building. Point 24 further provides that, if the developer violates the requirements concerning the deadlines for commencement of construction and obtaining an occupancy permit, and the purchaser consequently terminates the contract, the developer must refund all amounts paid, together with interest for the relevant delay, and pay liquidated damages of no less than 15% of the total purchase price of the land and building. However, the amount of such liquidated damages may not exceed the total amount already paid by the purchaser.
The Mandatory and Prohibitory Provisions are regulatory provisions with binding force on both parties to the contract. A developer may not exclude their application by special agreement or stipulate contractual terms that fall below the prescribed minimum standards. Conversely, where the developer voluntarily assumes more onerous contractual liability—for example, by agreeing to liquidated damages exceeding 15% of the total purchase price upon termination, or a daily default interest rate higher than 0.05%—such more favorable terms for the purchaser remain valid.
II. Legal Basis for Reducing Liquidated Damages and the Burden of Proof
Pursuant to Article 250 of the Civil Code, agreed contractual payments for breach may be classified into two categories: liquidated damages, which predetermine compensation for loss, and penalties, which serve a punitive purpose. Unless the parties expressly agree otherwise, an agreed amount is generally presumed to constitute liquidated damages. Once a breach occurs, the creditor may claim the agreed amount without having to prove the actual amount of loss. In practice, the liquidated damages clause under Point 24 of the Mandatory and Prohibitory Provisions is generally regarded as a liquidated damages provision intended to compensate the purchaser for loss.
Article 252 of the Civil Code provides that, where the agreed amount is excessively high, the court may reduce it to a reasonable amount. In addition, Article 251 provides that, where an obligation has been partially performed, the court may reduce the amount by reference to the benefit the creditor has received from such partial performance. The power to reduce liquidated damages is a judicial discretion exercised in light of the evidence and circumstances of each case. A reduction may be made upon a party’s application or by the court on its own initiative; it is not necessary for the debtor to make a formal request before the court may exercise this power.1
In litigation, however, a developer must present concrete evidence demonstrating that the agreed amount is manifestly disproportionate to the purchaser’s actual loss or establishing other grounds that warrant a reduction. Such evidence is necessary to persuade the court to intervene in the contractual allocation of risk and the principle of freedom of contract. A developer cannot expect the court to reduce the amount merely by making a general assertion that “the amount is too high and difficult to afford.”
III. Factors Considered by Courts in Reducing Liquidated Damages
(1) A Presumption of Reasonableness for Rates Prescribed by Government Regulations
In Civil Judgment No. 2381 of 2021 of the Supreme Court, the court expressly explained that the daily simple interest rate of 0.05% on the amounts already paid toward the purchase price of the land and building, as prescribed under Point 15 of the Mandatory and Prohibitory Provisions, was established pursuant to the authorization under Article 17, Paragraph 1 of the Consumer Protection Act. In setting this rate, the competent authority considered prevailing conditions in the pre-sale housing market, the relationship between business operators and consumers, and the legislative objectives of protecting consumer rights, promoting consumer safety, and improving the quality of consumer transactions. The rate reflected the authority’s professional judgment, which courts should generally respect. This judicial approach indicates that, where a contract adopts only the minimum standards prescribed by the government-approved standard-form provisions—namely, daily default interest of 0.05% and liquidated damages of 15% of the total purchase price upon termination—courts are generally less inclined to reduce the amounts further. Accordingly, a developer seeking a reduction based solely on the assertion that the agreed amount is substantial may have limited prospects of success. The developer should also establish other grounds for reduction, such as delay attributable to causes beyond the developer’s control, errors in calculating the relevant period of delay, or the application of the principle of offsetting benefits against losses.
(2) The Purchaser’s Actual Loss and Loss of Anticipated Benefits
According to the Supreme Court’s reasoning in Civil Judgment No. 807 of 1960, whether an agreed amount is excessive should be determined by comprehensively considering general objective circumstances, socioeconomic conditions, the losses suffered by the parties, and all benefits the creditor would have obtained had the debtor performed its obligations on time. In Civil Judgment No. 228 of 2017 of the Tainan District Court, the court referred to prevailing rental rates per ping in the area where the pre-sale property was located to calculate the purchaser’s objectively assessable loss equivalent to rental expenses during the period of delayed delivery. This calculation was then used to assess whether the agreed amount was substantially disproportionate to the purchaser’s actual loss. Accordingly, a developer may proactively submit real estate appraisal reports, local rental market data, and evidence concerning whether the purchaser had alternative accommodation during the period of delay or experienced any substantial inconvenience. Such evidence can help quantify and define the scope of the purchaser’s actual loss and provide a concrete basis for seeking a reduction. Where the developer can establish that the actual loss calculated according to prevailing market conditions is substantially lower than the agreed amount, the developer may have a stronger basis for persuading the court to reduce the amount.
(3) Partial Performance of the Contract
Under Article 251 of the Civil Code, where the developer has partially performed its contractual obligations, the court may reduce the agreed amount by reference to the benefit received by the purchaser from such partial performance. For example, the main structure of the building may have been completed, while the occupancy permit remains outstanding temporarily for reasons not attributable to the developer. If the purchaser has already been able to undertake interior renovations, occupy the property, or otherwise enjoy a substantial portion of the contractual benefits, the court may take these circumstances into account when determining an appropriate reduction. This factor is generally more persuasive when supported by evidence of the purchaser’s actual loss, as discussed above, and may serve as an additional basis for reducing the amount.
(4) The Agreed Amount Is Excessive Relative to the Purchase Price Already Paid
In Civil Judgment No. 933 of 2019 of the Taiwan High Court, the court considered a case in which liquidated damages calculated at a daily rate of 0.05% of the purchase price already paid amounted to 24% and 20% of the respective purchasers’ payments. Given that the purchasers had suffered relatively limited actual losses, the court held that the amounts were excessive and reduced the rate to daily simple interest of 0.01% on the amounts paid toward the purchase price of the land and building for each day of delay, which it considered more reasonable.
IV. Conclusion
In summary, when a developer faces litigation concerning liquidated damages or default interest arising from delayed performance under a pre-sale housing contract, the following considerations are particularly important when seeking a judicial reduction:
(1) Where the contract adopts only the minimum rates prescribed by the Mandatory and Prohibitory Provisions for liquidated damages and default interest, the competent authority’s determination of the reasonableness of those rates is a significant consideration. Accordingly, the scope for judicial reduction may be limited.
(2) A reduction is not necessarily granted automatically by the court. A developer should therefore prepare concrete evidence as early as possible, including real estate appraisal reports, local rental market data, reasonable profit benchmarks within the industry, and evidence concerning the purchaser’s actual use of the property or losses suffered during the period of delay. Quantifiable evidence is essential to demonstrate why a reduction is warranted.
(3) Whether an agreed amount is excessive must be assessed in light of general objective circumstances, socioeconomic conditions, and the losses suffered by the parties. A developer may seek to establish that the purchaser’s actual loss is manifestly disproportionate to the agreed amount, thereby demonstrating the need for a reduction.
At the contract-drafting stage, developers should reasonably assess the appropriateness of the contractual standards for calculating liquidated damages to avoid an unfavorable position in future disputes arising from amounts that substantially exceed those ordinarily stipulated in comparable contracts. By carefully structuring contractual provisions in advance, implementing effective construction management to minimize the risk of delay, and presenting sufficient evidence to support a reduction when a dispute arises, developers may improve their prospects of obtaining a fair and reasonable outcome through the judicial reduction mechanism under Article 252 of the Civil Code, thereby mitigating potential losses.
References
1 Supreme Court, Civil Judgment No. 1915 of 1990 (Taiwan).
If you require legal advice regarding trust structures, or need to review the legal terms of trust contracts provided by financial institutions or trust companies, please feel free to contact:
Attorney Wu Jiehua
charlotte.wu@zhongyinlawyer.com.tw
tel +886 2 2377 1858 ext 8888