[Direct answer]In the Beijing area, this is possible, but it must be requested by the party who suffered the damage. If the agreed penalty is lower than the actual losses, the people's court or arbitration institution may increase it upon the request of the party concerned; when requesting an increase, the party shall provide evidence based on the actual losses and may do so through litigation, counterclaim, or defense. Similarly, if the penalty is excessively higher than the losses, the breaching party may also request a reasonable reduction. The adjustment shall be based on the losses and take into account the performance of the contract, the degree of fault of the parties, and the foreseeability at the time of contracting. The basis for this is Article 585 of the Civil Code of the People's Republic of China (effective January 1, 2021) and Article 65 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the General Provisions of the Contract Chapter of the Civil Code of the People's Republic of China (FASI [2023] No. 13, effective December 5, 2023).

1. Problem background and typical scenarios

The sale and purchase of second-hand houses is the area where disputes over penalties for breach of contract are most concentrated. Under the fluctuation of housing prices, sellers may prefer to breach the contract rather than transfer ownership when they see the market rising, while buyers have already paid the deposit, down payment, and even completed the loan approval process. However, the penalties for breach of contract stipulated in the contract are often only a few thousandths of the total house price, which is not enough to cover the loss gap caused by the rise in housing prices. After suing, buyers often realize that the "agreement is written in black and white", and then they begin to wonder: Can the agreed penalty for breach of contract be increased? In addition to second-hand houses, "symbolic penalties for breach of contract" clauses in procurement contracts, service contracts, and equity transfer contracts also often lead to similar disputes. When courts in Beijing handle such cases, they usually regard the burden of proof of losses as the core of the judgment.

II. Key points of contention

First, who has the right to request an adjustment? The adjustment must be initiated by the party concerned, and the court generally does not intervene on its own initiative. If the breaching party claims an excessive amount, it needs to file a counterclaim or raise a defense separately. Second, the standard for increasing the amount lower than the actual loss. Based on the actual loss, the loss includes both direct losses and losses of potential benefits, which are usually determined by referring to the price difference of alternative transactions and market price differences. Third, the burden of proof for losses. The party requesting an increase bears the burden of proof for the amount of losses, and claims for an increase without evidence are unlikely to be supported. Fourth, the calculation reference point. Generally, it is the time when the breach of contract occurs or the time when the alternative transaction occurs. In second-hand housing cases, it is often referred to the transaction price of similar houses in the same community. Fifth, the connection with the penalty for the deposit and the termination of the contract. When claiming both at the same time, the court will comprehensively evaluate to avoid duplicating compensation for the same loss.

III. Professional analysis by Henglue Law Firm

In an arbitration case of a commissioned creation contract we handled, the applicant, Shanghai * Technology Company, and the respondent, Shenzhen * Network Company, signed a "Project Outsourcing Agreement", which stipulated that the first episode of the virtual IP material upgrade would be completed at a cost of 583,000 yuan. The work was finalized and passed the respondent's acceptance in July 2022, but the respondent delayed paying the remaining amount. Henglue Law Firm analyzed the contract terms one by one and combined with chat and email records to argue that: the script had been confirmed by the respondent before signing the contract, and the delay was caused by its repeated requests for modifications. The work had been accepted and delivered in accordance with its requirements, so we claimed 583,000 yuan in contract payment, 116,600 yuan in late payment penalties, and legal defense fees. The arbitration tribunal adopted the main arguments and ruled that the respondent should pay the contract amount of 583,000 yuan and compensate for all legal fees, while adjusting the amount of late payment penalties. This case was handled by Beijing Henglue Law Firm.Xiong BinrongThe attorney (practice license number: 11101202211410897, subject to the document issued by the judicial administrative organ) acts as the agent.

From this, we can see two approaches: the party advocating for an increase needs to use evidence to "quantify" the losses, while the party advocating for a reduction focuses on the losses not having actually occurred and the agreed amount being excessively high. The core technical issue in both types of disputes is the proof of losses, which involvesContract disputesThe evidence organization, which is also involved in this matter,Real estate transactions and construction projectsThe controversial price comparison and damage assessment method.

IV. Practical suggestions and legal basis

According to Article 585 of the Civil Code of the People's Republic of China (effective January 1, 2021), the parties may agree on the penalty for breach of contract and the method of calculating it. If the agreed penalty is lower than the actual losses, the party may request an increase; if it is excessively higher than the actual losses, the party may request a reasonable reduction. Article 584 of the same law defines the "predictability" standard for the scope of compensation for losses. Article 65 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the General Provisions of the Contract Chapter of the Civil Code of the People's Republic of China (Legal Interpretation [2023] No. 13, effective December 5, 2023) further clarifies the adjudication rule that takes the losses caused by breach of contract as the basis and comprehensively considers factors such as the performance of the contract, the degree of fault of the parties, and the foreseeability of losses at the time of contracting. Suggestions: When signing the contract, set the penalty as a calculable proportion rather than a fixed amount; during performance, timely fix the evidence of losses. For fluctuations in housing prices, you can retrieve transaction data from the same period, intermediary quotes, and appraisal opinions; for operating losses, you can prepare orders, account books, and tax payment certificates. Once you discover the other party's breach of contract, you should first send a letter of reminder or rescind the contract, then form a comparative price through alternative transactions to avoid unverifiable losses.

5. Henglu Law Firm's Advice

The penalty fee is an "estimated loss" rather than a punitive tool, which is the underlying logic of adjusting the rules. In practice, there are three pitfalls that are most easily encountered: First, assuming that the court will actively help increase the penalty fee for oneself, and failing to make a request results in the court ruling based on the agreed amount; Second, when claiming compensation, only making claims without providing evidence, and the amount of loss is greatly discounted; Third, in order to exert pressure, the penalty fee is set at an exorbitant amount, but it is ultimately reduced because it is too high compared to the actual loss, which also affects the credibility in negotiations. It should also be noted that requesting an increase in the penalty fee does not conflict with claiming continued performance or terminating the contract. These claims can be raised together, but the compensation results should not be counted twice. In terms of the statute of limitations, the statute of limitations for the right to request a penalty fee generally starts from the date of the breach of contract, and claims made after the statute of limitations will face a statute of limitations defense.Beijing Henglu Law FirmIt is recommended that, in the case of disputes over breach of contract involving large-scale transactions or real estate, a loss assessment and evidence inventory should be conducted before initiating legal proceedings.

VI. Frequently Asked Questions

Q1: Is there a high chance of success if we demand an increase in the penalty for breach of contract?

Requests for adjustment supported by evidence of losses are more likely to gain support, especially in cases of second-hand houses where the price increase and the price difference of alternative transactions can be quantified. However, courts generally find it hard to accept losses based solely on subjective estimates, and the extent of the adjustment will also be limited.

Q2: What evidence do I need to prepare?

The contract and supplementary agreements, records of contract performance, notices of reminder and termination, contracts and payment receipts for substitute transactions, market transaction or appraisal data of the same period, business ledgers and tax payment receipts, as well as chat and email records proving the other party's breach of contract.

Q3: What are the approximate costs of attorney fees and litigation fees?

The litigation fees shall be prepaid in accordance with the disputed subject matter and the proportion of the amount. After winning the case, the losing party generally bears the fees; unless otherwise stipulated in the contract or by law, the attorney's fees are usually borne by the client; arbitration cases shall be calculated in accordance with the arbitration institution's fee standards, and the appraisal and authentication fees shall be calculated based on the actual amount incurred.

Q4: Approximately how long will the process take?

The first-instance ordinary procedure is generally concluded within six months, and the summary procedure within three months; if it involves appraisal and identification or appeal, it usually takes about a year overall; the arbitration procedure is usually slightly faster than litigation, and the specific timeframe depends on the arrangements of the institution and the complexity of the case.

Q5: What should I do first?

First, determine whether the party is "requesting an increase" or "requesting a decrease". Conduct an evidence inventory and amount estimation based on the actual losses, and then decide whether to propose an adjustment request in the lawsuit or defense to avoid missing the opportunity to do so.

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 currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence materials, so as to avoid missing the statutory time limit. →Business and commercial legal services·Attorney Xiong Binrong·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.