Is it permissible to levy a late penalty on a construction company that failed to complete the building within the specified period, especially given that this penalty is calculated as a monthly percentage of the contract value?

The penalty clause imposed on the contractor and manufacturer for their delay is permissible, whereas it becomes usury (riba) if the obligation is a debt, such as a late payment penalty on an installment buyer or a mustasni' (commissioning party in a manufacturing contract) if they delay payment. The Islamic Fiqh Academy has affirmed in its resolutions that the penalty clause is permissible in all financial contracts except for contracts where the original obligation is a debt, such as installment sales. The compensable damage includes actual financial harm, real loss, and certain loss of profit. The penalty clause is not applied if the breach is due to circumstances beyond control or if no damage was incurred. The court may adjust the amount of compensation if it is exaggerated, and the penalty must be equal to the actual anticipated damage.