Right of purchase and contractual penalty
Does the buyer always lose the amount paid when waiving a right of purchase? A ruling by the Ticino Court of Appeal says no: the contractual penalty may be reduced or refunded.
Right of purchase and contractual penalty: when can a refund be claimed?
In property transactions in Ticino, the right of purchase is a commonly used instrument. It is a contract whereby one party obtains the option, but not the obligation, to buy a property at a price already agreed within a set timeframe. The beneficiary typically pays a sum at the time of signing. If the right of purchase is then exercised, the sum counts as a deposit towards the price. If the beneficiary decides not to exercise the right, the amount remains with the seller as a so-called "contractual penalty".
A practical example
A (prospective buyer) and B (owner) agree as follows:
- Sale price of the property: CHF 1,300,000
- A obtains a right of purchase exercisable within 24 months
- A pays CHF 300,000 to B immediately
Two possible scenarios:
- A exercises the right: A must pay the balance of CHF 1,000,000, having already paid CHF 300,000.
- A does not exercise the right: B remains the owner and retains the CHF 300,000 paid by A.
Ticino case law changes the picture
Until recently, it was generally assumed that the amount paid would remain entirely with the seller in the event of non-exercise. A ruling by the Court of Appeal of the Canton of Ticino (II CCA 31.5.2021 No. 12.2020.140) called this assumption into question.
According to the Court, the sum payable by the beneficiary does not constitute a true contractual penalty within the meaning of Art. 160 et seq. CO. Consequently, it is not automatic that the seller may retain the entire amount.
When the seller may retain the sum
The grantor (B) may retain the amount only if it represents genuine compensation for the restriction on his ownership rights during the period of validity of the right of purchase. In other words, B must demonstrate that the sum served to compensate for the obligation not to sell to third parties throughout the duration of the contract.
If this proof is not provided, the amount paid is treated as a mere means of pressure on the beneficiary to proceed with the purchase. In that case, the party who does not exercise the right of purchase may request a reduction or even the full return of the sum paid, in accordance with the general principles of Art. 163(3) CO.
What threshold makes the penalty "excessive"?
A reduction is justified where there is a gross disproportion between the agreed amount and the concrete interest of the grantor. The Ticino Court of Appeal provided useful guidance:
- A penalty of 28% of the sale price was held to be disproportionate and therefore subject to reduction.
- A penalty of 10% of the sale price was considered proportionate.
In our example, the CHF 300,000 represents approximately 23% of the agreed price of CHF 1,300,000. If A demonstrates that the contract did not expressly characterise the sum as compensation for the restriction borne by B, he could obtain a significant reduction: for example, a penalty recalculated at 10% (CHF 130,000), with a refund of approximately CHF 170,000.
Why legal advice matters
This case law has significant practical consequences for both those granting and those receiving a right of purchase. The drafting of the contract becomes decisive: precise wording can protect the seller, while a generic clause may open the door to claims for restitution by the buyer.
Studio Legale e Notarile Haab in Lugano regularly assists clients in property transactions of this kind. Hugo Haab, Attorney-at-Law, and Roberto Haab, Attorney-at-Law, can review or draft contracts containing a right of purchase, ensuring that the clauses on contractual penalties are formulated clearly and on a sound legal footing.
For a personal consultation: info@haablegal.ch | +41 91 913 30 70
