What Are Liquidated Damages?
Liquidated damages are a fixed amount the parties agree in advance will be paid if one of them breaches the contract. Rather than leaving damages to be proven later, the contract states the sum up front. They are common where actual damages from a breach would be difficult to calculate — and a familiar example is the earnest money deposit a buyer forfeits if they default on a real estate purchase.
When Liquidated Damages Are Enforceable
Florida courts enforce a liquidated-damages clause only if it is a reasonable estimate of anticipated harm — not a penalty designed to punish. Generally, two things must be true: at the time of contracting, actual damages were difficult to ascertain, and the agreed amount was a reasonable forecast of the likely loss. If the sum is grossly disproportionate to any conceivable harm, a court may treat it as an unenforceable penalty and award only actual damages.
In Florida Real Estate Contracts
- The standard contracts often let a defaulting buyer's deposit serve as liquidated damages
- The clause must still meet the reasonableness test to be enforced
- Sellers sometimes must choose between keeping liquidated damages or pursuing other remedies
Related Terms
- Earnest Money — Often serves as liquidated damages
- Breach of Contract — What triggers the clause
- Damages — The alternative to a liquidated amount
Barnes Walker
Barnes Walker's attorneys draft and litigate liquidated-damages and deposit provisions in Florida contracts. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC