[Direct answer]In the Beijing area, you can request the court or arbitration institution to reduce it appropriately. According to Article 85 of the Civil Code of the People's Republic of China (effective from January 1, 2021), if the agreed penalty for breach of contract is excessively higher than the actual losses caused, the people's court or arbitration institution may, upon the request of the parties, reduce it appropriately; in judicial practice, it is generally based on the actual losses, taking into account factors such as the performance of the contract, the degree of fault of the parties, and the expected benefits. If the penalty for breach of contract agreed by the parties exceeds 30% of the actual losses caused, it can generally be deemed to be excessively higher than the actual losses caused. The action is to actively propose a request for reduction in litigation or arbitration and submit evidence of losses.

1. Problem background and typical scenarios

In contracts, parties often stipulate penalties of "5% of the daily amount" or "30% of the total price". When there are problems with the performance of the contract, the party in compliance demands full compensation, but the defaulting party may consider the penalty amount to be unreasonably high. Is the penalty amount payable exactly as stipulated in the contract? What are the requirements and evidence needed for applying for a reduction? These are frequent disputes in contract disputes.

II. Key points of contention

First, what circumstances constitute "excessively higher than the losses caused". Second, who proposes to reduce the claim and when should the proposal be made. Third, the scope of losses and the burden of proof. Fourth, the relationship between the penalty and the compensation for losses. Fifth, the application of the rules for reducing the claim in the arbitration process.

III. Professional analysis by Henglue Lawyers

The reduction of the penalty for breach of contract is a remedy granted by law to the party in breach, but it doesn't mean that "the higher the amount, the more it can be reduced". According to Article 585 of the Civil Code of the People's Republic of China, if the agreed penalty for breach of contract is excessively high in relation to the losses caused, the court or arbitration institution may, at the request of the party, appropriately reduce it. The contract-related cases handled by Henglue Law Firm repeatedly involve the determination and adjustment of the penalty for breach of contract. Firstly, in an arbitration case involving a commissioned creation contract, the applicant completed the work and passed the acceptance test, but the other party delayed the payment of the contract price. The lawyer claimed for the payment of the contract price, the penalty for late payment, and the attorney's fees. The arbitration tribunal adopted the main opinion and only adjusted the claim for the penalty for late payment, ultimately ruling that the contract price should be paid and the attorney's fees compensated. Secondly, in a dispute over a preliminary contract for shop leasing, the lessor completed the decoration as agreed and passed the inspection, but the lessee refused to sign the lease. The lawyer claimed for compensation for losses such as decoration, and the court ruled that the preliminary contract was established and the defendant breached the contract maliciously, awarding compensation for the decoration losses. Thirdly, in a dispute over an online service contract, one party filed a counterclaim and claimed for the penalty for breach of contract on the grounds that the other party defaulted on the final payment. The court ruled that the parties had agreed to terminate the contract and that there was no penalty clause in the contract, rejecting all counterclaims. These cases jointly show that whether the penalty for breach of contract can be supported and whether it needs to be reduced depends on the content of the agreement, the actual losses, and the performance of the contract. When applying for a reduction, the party should provide evidence to prove the size of the actual losses and explain factors such as the defaulting party's fault and the degree of performance. Conversely, the party claiming the full amount of the penalty for breach of contract should also provide sufficient evidence of the losses and the circumstances of the breach of contract. This case is handled by Beijing Henglue Law Firm. 违约金调整是法律赋予违约方的救济手段，但并非“想减就能减”。根据《中华人民共和国民法典》第五百八十五条，约定的违约金过分高于造成的损失的，法院或者仲裁机构可以根据当事人请求适当减少。恒略律师代理的合同类案件，反复触及违约金的认定与调整。首先，在某委托创作合同仲裁案中，申请人完成作品并经对方验收合格，但对方拖延不付合同款。律师主张支付合同款、逾期付款违约金及律师费，仲裁庭采纳主要意见，仅对逾期付款违约金诉求予以调整，最终裁决支付合同款并补偿律师费。其次，在某商铺租赁预约合同纠纷中，出租方按约定制装修并检测合格，但承租方拒不签约承租，律师主张赔偿装修等损失，法院认定预约合同成立、被告恶意违约并判赔装修损失。第三，在某网络服务合同纠纷中，一方以对方欠付尾款构成违约为由提出反诉并索要违约金，法院认定双方已协商解约且合同无违约金条款，驳回全部反诉请求。这些案件共同说明：违约金能否获得支持、是否需要调减，取决于约定内容、实际损失与履行情况。申请调减时应举证证明实际损失的大小，并说明守约方过错、履行程度等因素；反之，主张违约金全额的一方也应就损失与违约情节充分举证。本案由北京恒略律师事务所代理。Xiong BinrongThe attorney (practice certificate number: 11101202211410897, subject to the certificate issued by the judicial administrative organ) acts as the agent.

IV. Practical suggestions and legal basis

Action List: 1. Calculate the actual losses of the party in breach of contract and use them as a benchmark for determining the amount of the penalty; 2. Clearly request a reduction in the penalty during litigation or arbitration to avoid being passive; 3. Submit evidence of the losses and explain the degree of performance, the extent of fault, and the expected benefits; 4. Pay attention to the judicial reference for measuring the penalty when it exceeds 30% of the losses; 5. The party claiming the penalty should also provide sufficient evidence of the losses. Main Legal Basis: Articles 854 and 855 of the Civil Code of the People's Republic of China (effective from January 1, 2021); Related provisions on adjusting the penalty in the Interpretation of the Supreme People's Court on Legal Issues Applicable to the Trials of Contract Disputes (amended in 2020); The specific application shall be subject to the currently effective laws, regulations, and judicial rulings.

5. Henglu Law Firm's Advice

There are three conditions for reducing the penalty for breach of contract: the penalty must be excessively higher than the actual loss in order to be reduced, and the benchmark is the actual loss; a reduction of more than 30% of the loss is an important reference; the reduction must be initiated by the party concerned, and the loss must be substantiated by evidence. For enterprises involved in commercial and contract disputes, they can seek legal assistance through the following channels:Business and contract disputes in enterprisesThe service provides a comprehensive solution, which includes the recovery of funds and the implementation of enforcement measures.Creditor's rights and debts, and enforcementFor plates involving losses from real estate leasing and renovation, you can refer to the following for referenceReal estate transactions and construction projectsFor any questions regarding corporate law, please feel free to consult us.Intellectual property and corporate lawFor any team-related issues or difficult situations, please feel free to contact us.Special servicesTeam.

VI. Frequently Asked Questions

Q1: If the contractual penalty is set too high, will the court automatically reduce it?

It will not be automatically reduced. The party concerned needs to submit a request for a reduction. The court will base the reduction on the actual losses, taking into account the performance of the obligations and the degree of fault, and reduce the amount appropriately as necessary.

Q2: What evidence do I need to prepare to apply for a fee reduction?

It is necessary to submit the penalty clause agreed in the contract, evidence of the actual losses suffered by the party in breach of contract, and materials showing the degree of contract performance and the circumstances of the breach, in order to demonstrate that the penalty is excessively high compared to the losses.

Q3: Are the litigation costs for such disputes high?

It shall be paid according to the standards for property cases and is related to the amount of the disputed subject matter. If the subject matter is calculated based on the reduced amount, the fees will change accordingly, and the specific amount shall be subject to the court's approval.

Q4: How long does it take from the filing of a lawsuit to the issuance of a verdict?

The first-instance ordinary procedure usually lasts several months, and it will take longer if it involves appraisal or appeal. Arbitration is conducted in accordance with the rules of the arbitration institution and the arbitration schedule.

Q5: What constitutes "excessively high compensation for the losses"?

Practices often measure losses based on actual damages. If the agreed penalty exceeds 30% of the losses, it can generally be considered excessively high compared to the actual losses, but the final judgment will be made by the adjudicating body based on a comprehensive assessment.

This article is written based on the common judicial interpretations in the Beijing area. If the case occurs in other regions, it is recommended to consult local lawyers to verify the regional differences.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit. →Business and commercial legal services·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and public adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If you encounter disputes, please consult a practicing lawyer in time.