What Are Consequential Damages?
When someone breaches a contract, the injured party can sue for damages. Most damages are "direct" (the cost to fix the immediate problem). Consequential damages go further; they compensate for the ripple-effect losses caused by the breach.
Consider this real estate scenario: A contractor agrees to finish renovating a restaurant by June 1st. The contractor breaches the contract and doesn't finish until September 1st. The direct damages are the extra cost to hire a second crew. The consequential damages are the three months of lost restaurant revenue ($300,000) that the owner would have earned if the restaurant had opened on time.
The Foreseeability Requirement
Under Florida law (and the landmark 1854 English case Hadley v. Baxendale), consequential damages are only recoverable if the breaching party could have reasonably foreseen the downstream losses at the time the contract was signed.
If the contractor knew the building was going to be a restaurant, they could foresee that a three-month delay would cause lost revenue. Those consequential damages are recoverable. However, if the restaurant owner had secretly planned to host a massive $1 million private event on opening night (and never told the contractor), the contractor could not have foreseen that specific loss, and those consequential damages would be denied.
Waiver Clauses in Commercial Leases
Because consequential damages can be astronomically large (potentially tens of millions in lost profits for a major business), sophisticated commercial lease and construction contracts almost always contain a consequential damages waiver clause. This clause states that neither party can sue the other for indirect losses. Tenants and contractors should have an attorney carefully review these clauses, as signing one means surrendering the right to recover potentially massive lost-profit claims.
Related Terms
- Damages — The broader category that includes both direct and consequential damages
- Breach of Contract — The triggering event that gives rise to consequential damages
- Commercial Lease — The document that often contains a consequential damages waiver
Barnes Walker Commercial Litigation
Barnes Walker's commercial litigators aggressively pursue multi-million-dollar consequential damage claims for Florida businesses harmed by construction delays, landlord breaches, and supply chain failures, utilizing forensic accounting to prove the full scope of our clients' lost profits. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC