Get USING LIQUIDATED DAMAGES CLAUSES

While liquidated damages provisions can have advantages, they are not always enforceable. If the predetermined amount of damages ends up grossly disproportionate to the actual harm suffered, courts will refuse to enforce the provision on the grounds that it is a penalty instead of an estimate of actual damages.

A liquidated damages clause (or an agreed damages clause), is a provision in a contract that fixes the sum payable as damages for a party's breach. In comparison, unliquidated damages are damages for a party's breach which have not been pre-estimated.

The liquidated damages are justifiable, clearly reasonable and proportional to the prejudice that would be suffered by the Non-Defaulting Party in case of default on the part of the Defaulting Party to abide by their undertakings and, consequently, each party hereby recognises that the liquidated damages clause is not ...

A normal figure used for assessing liquidated damages is 0.5% per week of delay with a maximum of 2.5%. This means that the vendor's maximum liability becomes operative after a 5 weeks' delay and is limited to 2.5% of the contract value.

It should include a clause that sets out the specific amount of damages you are to receive if a specific type of breach occurs. This amount will need to be negotiated with the contracted party, but it should represent an estimate of the damages you will sustain if they do not perform to a certain standard.

For example, the amount must be reasonable. Liquidated damages are not designed to punish contractors, and thus cannot be an amount that could be considered excessive or punitive. For example, $20-$25 per day for each $100,000 of the contract price would be considered a reasonable amount.

An example of liquidated damages is when a bank or person offers money in the form of a loan and the stipulated time of repayment ends before the completion of payment. The defaulting party must compensate for this damage as agreed in the contract.

Legally speaking, liquidated damages are defined as, “Monetary compensation for a loss, detriment, or injury to a person or a person's rights or property, awarded by a court judgment or by a contract stipulation regarding breach of contract.”