By Jeffrey L. Marcus*
A liquidated damage
provision contractually sets forth a specific dollar
amount to be paid by the breaching party to the
Today, a vast majority of business and real estate
contracts contain a liquidated damage provision because
damages for breach of contract can be difficult to
determine and the provision allows for the payment of
breach of contract damages without the time and expense of
court intervention. In
choosing whether to use a liquidated damage provision and
in drafting one, care should be taken to maintain its
Validity of a Liquidated
A liquidated damage provision
should be reasonable and should set forth the anticipated
following are a few factors in analyzing whether a
liquidated damage provision is reasonable:
between the liquidated damages and the anticipated
the equality of
the parties’ bargaining power
parties were represented by attorneys
Note, in a real property purchase and sale
agreement, a liquidated damage provision must be
separately signed/initialed by each party and if included
in a pre-printed form it must be in at least 10-point bold
Liquidated Damage Provision and Specific Performance:
a real estate transaction, specific performance is an
important remedy for the parties.
If the parties agree upon a liquidated damage
provision, the remedy of specific performance may be
waived. In drafting the liquidated damage provision,
make sure it reflects the intent of the contracting
parties in connection with specific performance.
Advantages and Disadvantages of a Liquidated Damage:
You are a seller of real property receiving an offer.
The buyer tenders with his signed purchase offer
a $50,000 deposit.
The purchase and sale agreement requires
liquidated damages as the sole remedy in the amount of
the $50,000 deposit should buyer breach.
As a seller, the liquidated damage provision may
require escrow to disburse the deposit to the seller
upon buyer’s breach.
The advantage to the seller is a non-judicial
means of recovering a specified amount of damages
generally in a short period of time.
The disadvantage is that the seller may give up
other forms of relief including damages for the lost
opportunity of a sale to other buyers at a potentially
higher price and the right to seek specific performance
of the transaction.
The advantage of liquidated damages to the buyer
is the knowledge of a specific payment amount should
in most commercial transactions liquidated damage
provisions are presumed valid unless determined to be
is an imprecise concept where the court considers and
weighs several factors.
Care must be taken at the drafting stage to
minimize the possibility of a court invalidating the
liquidated damage provision.
This article is from a newsletter published for the interest of friends, clients and prospective clients of the
Law Offices of Jeffrey L. Marcus and should not be relied upon or considered as legal advice.
*Jeffrey L. Marcus, Esq. provides litigation services and transactional advice to the firm’s clients.
He has more than 21 years’ experience in private and corporate practices involving business transactions
and real estate. Mr. Marcus can be contacted at
email@example.com or at the
above address/telephone number.