Deposits in Real Estate Transactions: What Is the Maximum Deposit Penalty, and Can It Be Combined with a Contractual Penalty?

In real estate transactions, parties commonly agree on a deposit penalty amounting to several times the deposit, together with an additional contractual penalty, on the assumption that a higher penalty secures a stronger commitment from the other party. However, under new guidance of the Supreme People’s Court, effective from 15 October 2026, such agreements will no longer be fully upheld by the courts in the event of a dispute. This article helps both depositors and deposit recipients understand how much they may actually claim, or be required to pay, when a transaction falls through. 

1. What is the maximum deposit penalty? 

Under Clause 2, Article 328 of the 2015 Civil Code (the “Civil Code”), if the depositor refuses to enter into or perform the contract, the deposited property shall belong to the deposit recipient. Conversely, if the deposit recipient refuses, it must return the deposited property and pay an additional amount equivalent to the value of the deposited property, unless otherwise agreed. In other words, a penalty equal to the deposit is merely the default rule, and the parties remain free to agree on a higher penalty. Clause 1, Article 6 of Resolution No. 03/2026/NQ-HDTP dated 18 August 2026 of the Council of Judges of the Supreme People’s Court (“Resolution 03”) reaffirms this principle. 

However, this freedom of agreement is now subject to a limit. Under Clause 2, Article 6 of Resolution 03, where the parties agree on a deposit penalty exceeding the value of the contract, the court will consider and determine the penalty amount, which shall not exceed the value of the contract at the time of the first-instance trial. For example, Mr. A pays a deposit of VND 200 million to purchase a land plot valued at VND 1.5 billion from Ms. B, and the parties agree that if Ms. B defaults, she must pay a penalty of ten times the deposit, i.e., VND 2 billion. When Ms. B refuses to sell, Mr. A is entitled to the return of the VND 200 million deposit, but the VND 2 billion penalty will not be upheld in full; instead, the penalty will be determined by the court, capped at the value of the land plot. As this value is determined at the time of trial, the cap may differ from the price stated in the contract if land prices fluctuate (depending on the parties’ agreement).  

In addition to the cap on the penalty amount, where the parties have not agreed otherwise on the handling of the deposit, Resolution 03 sets out two circumstances in which the court will not impose a deposit penalty: 

1. Both parties are at fault, or the contract is not entered into or performed due to a force majeure event or an objective obstacle (Point a, Clause 3, Article 6 of Resolution 03). For example, the deposit recipient undertakes to complete the procedures for the issuance of the land use rights certificate within three months and has duly submitted the application, but the competent state authority has not issued the certificate by the end of that period. This is considered an objective obstacle, and the deposit recipient is therefore not liable for the deposit penalty; 
2. The deposit was made solely to secure the conclusion of the contract, and the contract has been concluded, but a breach subsequently arises during performance that prevents the contract from being performed, or the contract is subsequently found to be partially or wholly invalid. In such case, the dispute shall be resolved in accordance with the law on breach of contract or on the consequences of invalid contracts (Point b, Clause 3, Article 6 of Resolution 03). 

Furthermore, if the deposit recipient is late in returning the deposit, the depositor is entitled to claim interest on the overdue amount under Article 357 of the Civil Code, accruing from the day immediately following the date on which the obligation to return the deposit arises. By contrast, no interest accrues on the deposit penalty, unless otherwise provided by law or agreed by the parties (Clause 4, Article 6 of Resolution 03). 

2. Can a deposit penalty be combined with a contractual penalty? 

In practice, many deposit agreements impose two sanctions for the same breach. For instance, the defaulting party is subject to a deposit penalty and is also required to pay an additional contractual penalty under Article 418 of the Civil Code, typically calculated as a percentage of the contract value. Clause 6, Article 6 of Resolution 03 has definitively resolved this issue. Specifically, where the parties have so agreed, the court will uphold only the claim for the deposit penalty and will reject the claim for the contractual penalty. Returning to the example above, if the deposit agreement also contains a contractual penalty of 8% of the value of the breached contract (equivalent to VND 120 million), Mr. A will likewise be unable to claim this amount from Ms. B. 

In the author’s view, this approach is reasonable. Both the deposit penalty and the contractual penalty are punitive sanctions pre-agreed by the parties and independent of any actual loss. Applying both concurrently would mean that a single breach is penalized twice. 

It should be noted that a contractual penalty is distinct from compensation for damages. Unless otherwise agreed, the aggrieved party remains entitled to claim both the deposit penalty and compensation for damages (Clause 5, Article 6 of Resolution 03; Article 419 of the Civil Code). For instance, if Mr. A had taken out a bank loan to fund the land purchase, the interest expenses incurred may be considered actual loss. However, Mr. A bears the burden of proving such loss with specific documents and evidence (Article 91 of the 2015 Civil Procedure Code). 

In summary, the parties remain free to agree on the deposit penalty, but the penalty may not exceed the value of the contract. Moreover, once a deposit penalty is applied, a contractual penalty may not be claimed concurrently. When drafting a deposit agreement, the parties should clearly define the purpose of the deposit, select an appropriate sanction, and retain all supporting documents to protect their rights in the event of a dispute. 

Submission date: October 17, 2026

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Disclaimers:

This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.

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