Penalty clause (liquidated damages)

Under Turkish law, a penalty clause is a sum the debtor agrees in advance to pay if an obligation is breached or not performed properly. The creditor may claim it without having to prove any actual loss, which makes the clause a powerful tool for securing performance.

Such clauses are common in construction contracts for late delivery, in leases for early termination, and in employment-related non-compete undertakings. As a rule the creditor must choose between performance and the penalty, but where the penalty was agreed for delay or place of performance, both may be claimed together.

Courts may reduce an excessive penalty of their own motion. Merchants can rely on this reduction only where the penalty would cause their financial ruin, while one-sided penalty clauses imposed solely on employees are considered invalid.