Buying a property in France is a two-stage legal process, which starts with a sale and purchase contract (compromise de vente) and ends with signing the deed of sale (acte authentique).

Where a buyer is unwilling to proceed to completion it can trigger the penalty clause, when damages are then payable.

Although the amount of the penalty may be the same as the deposit lodged by the buyer, it is not always the case. The deposit and the penalty clauses are different and the amounts may differ. It is possible to, say, put down a deposit of 1% of the purchase price with a penalty clause of 10%.

In such circumstances, if the buyer defaults on the purchase without legal justification the notaire will not hold sufficient funds to compensate the seller. It may then be necessary for the seller to bring a legal action to enforce the penalty obligation.

The problem frequently is that fault cannot always be easily established, particularly where the buyer considers there are extenuating circumstances.

If the notaire considers that the buyer is likely to contest the matter they may well be unwilling to hand over the penalty to the seller. If they did so, and it was later found in court that the buyer was not at fault, that could leave them open to the payment of damages. Some notaires, therefore, insist on a signed statement from the defaulting buyer relinquishing legal action.

Where completion is made conditional on a mortgage the terms will be specified, including time limits. If the bank is slow to make an offer, the non-fulfilment of the condition within the period is not attributable to the purchaser and the penalty clause cannot be invoked. However, the many elements to the mortgage condition all have the potential for dispute.

Similar problems can arise where the sale is subject to the buyer obtaining planning permission, and there are delays in getting the consent, or it is a consent that includes conditions not to the liking of the buyer.

Even where it is clear the buyer is at fault, they may choose to challenge the severity of the penalty clause. If the buyer contests the amount of the penalty and a court considers that the seller did not suffer significant loss (for instance, that they were able to sell the property later at the same price), they could reduce the amount of the award.

In the event of dispute is also always open to buyer and seller to discuss a mutually agreeable damages sum, and in the face of a buyer who is resisting enforcement of the penalty clause, and a notaire who is sitting on their hands, negotiation can often be the quickest and most economical approach.