Question:
Currently, we have signed a contract for a customer to rent motorcycles from November 2024, with a term of 3 years. The rental fee is calculated monthly and paid on a monthly basis. During usage, some motorcycles occasionally broke down, but all were maintained regularly and repaired promptly after the customer notified us, and then operated normally.However, the customer suddenly requested to terminate the contract early from November 2025, citing safety concerns regarding the motorcycles. We would like to ask: in this case, would the customer be considered in breach of the contract, and can the contract’s penalty clause (“The breaching party shall pay a penalty of 8% of the value of the breached contractual obligation and compensate for actual, direct damages arising from the breach”) be applied?
Answer:
1. Right to early termination: The customer has the right to unilaterally terminate the contract early without being liable for compensation or penalty, provided that the customer fully and properly fulfills the prior notice obligation as stipulated in the contract. This prior notice requirement serves as the basis for determining the right to terminate the contract without incurring legal or financial liability to the lessor.
2.Compensation and penalty obligations: If the customer fully complies with the above prior notice obligation, the customer will not be subject to any contract penalties and is not required to compensate the lessor for any damages. This provision ensures the customer’s rights when exercising early termination in accordance with the contract and also protects the legal interests of the lessor in the event of a breach.
3.Calculation of penalties (if applicable): In the event the customer breaches the contract by unilaterally terminating it early without fulfilling the prior notice obligation, the penalty will be applied according to the contractual provision, specifically 8% of the value of the breached contractual obligation. In practice, for a rental contract, this penalty is calculated as 8% of the total rental fee for the period from the actual termination date (e.g., November 2025) to the originally scheduled end of the contract (e.g., November 2027). Under this understanding, calculating the 8% penalty on the remaining contract term is correct and consistent with the signed contract provisions.
Conclusion: The customer’s right to early termination and corresponding obligations regarding compensation or penalties directly depend on whether the customer fully complies with the prior notice requirement. If the prior notice is properly given, the customer will not be liable for any penalty or compensation. Conversely, if this obligation is violated, the 8% penalty applied to the remaining total rental fee constitutes a reasonable and contractually consistent basis for calculation.
Consultation: Contract drafting consulting service
