A dispute arising from a contract for the provision of office space
In a judgment dated 28 May 2026, the Nanterre Judicial Court ruled on the consequences of the termination of a service contract relating to the provision of private offices. This decision is of particular interest in relation to penalty clauses, as it reiterates the court’s power to reduce contractual compensation that is manifestly disproportionate to the actual loss suffered.
The dispute was between Hiptown Exploitation, a company specialising in the operation of flexible workspaces, and SCI Kynan Patrimoine et Immobilier. On 19 September 2023, the parties had entered into a service contract for the provision of private offices in a building located in Paris.
The contract was concluded for a fixed term of three years from 1 January 2024. It provided for the payment of a monthly fee of €10,056 excluding VAT, as well as a security deposit of €20,112 excluding VAT.
Total failure to fulfil financial obligations
Failure to pay the security deposit
From the very start of the contract’s execution, SCI Kynan Patrimoine et Immobilier failed to meet its financial commitments.
The company never paid the security deposit, despite this being expressly provided for in the contract. This breach was the first factor leading to the dispute.
Unpaid fees
At the same time, none of the monthly fees due from January 2024 onwards have been paid.
In light of this situation, Hiptown Exploitation issued a formal notice on 30 April 2024 claiming:
- €20,112 in respect of the security deposit;
- €48,268.80 corresponding to the unpaid fees.
As this formal notice had no effect, the operating company notified the termination of the contract on 23 May 2024 on the grounds of breach of contract.
The proceedings brought before the court
Hiptown Exploitation’s claims
By writ of summons dated 10 September 2024, Hiptown Exploitation brought proceedings before the Nanterre Judicial Court.
It sought, in particular:
- a declaration that the contract had been terminated;
- an order requiring SCI Kynan to pay €438,019.20;
- procedural costs pursuant to Article 700 of the Code of Civil Procedure.
The sum of €438,019.20 corresponded to the application of a contractual clause providing for the payment of all sums that would have been due until the normal expiry of the contract.
The SCI’s failure to defend itself
SCI Kynan Patrimoine et Immobilier, despite having been duly summoned, did not instruct a solicitor.
The court therefore ruled on the merits in accordance with Article 472 of the Code of Civil Procedure, which requires the judge to verify personally that the claimant’s claims are valid, admissible and well-founded.
The nature of the disputed clause
A termination clause accompanied by a lump-sum indemnity
The contract contained a clause providing that, in the event of termination due to a breach by the beneficiary, the latter would remain liable for all sums due until the normal expiry of the contract.
This provision had the effect of requiring the SCI to pay the equivalent of all outstanding fees following termination.
A genuine penalty clause
The court noted that a clause setting in advance the amount of compensation due in the event of a breach of contract constitutes a penalty clause within the meaning of Article 1231-5 of the Civil Code.
The judges found that the disputed clause met this definition exactly, as it assessed the service provider’s loss on a lump-sum basis in the event of the client’s default.
They also held that the SCI’s breaches of contract were clearly established, as it had failed to pay either the security deposit or the fees provided for in the contract.
Judicial review of the penalty clause
Compensation deemed manifestly excessive
Whilst the court recognised the principle of contractual compensation, it nevertheless refused to apply the clause mechanically.
The judges emphasised that applying the clause in full would result in the SCI being required to pay the equivalent of thirty-six months’ rent, whereas the contract had only been performed for five months and the premises had never been occupied.
In these circumstances, the compensation claimed appeared disproportionate to the actual loss suffered by Hiptown Exploitation.
A reduction in the penalty
Exercising the moderating power provided for in Article 1231-5 of the Civil Code, the court significantly reduces the penalty clause.
Instead of the €438,019.20 claimed, it sets the compensation at €70,392 including VAT, corresponding to:
- five months’ rent, i.e. €50,280;
- the contractual security deposit of €20,112.
The court considers that this amount constitutes compensation proportionate to the actual loss suffered by the service provider.
The decision
The Nanterre Judicial Court orders SCI Kynan Patrimoine et Immobilier to pay Hiptown Exploitation the sum of €70,392 (including VAT) in respect of the termination of the contract for breach. It also orders the defendant to pay €2,000 pursuant to Article 700 of the Code of Civil Procedure, as well as all costs.
Practical implications of the decision
This decision illustrates the scrutiny exercised by the courts over penalty clauses, even where the breach of contract is indisputable. The court always retains the power to reduce contractual damages where they appear manifestly excessive in relation to the actual loss suffered. The judgment thus serves as a reminder that contractual freedom is limited by the requirement that the financial penalty attached to a breach of contract must be proportionate.
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