Florida Appeals Court Allows Liquidated Damages Provision to Stand
On February 21st, 2018, the Third District Court of Appeals for the State of Florida upheld a lower court ruling in the case of Liork, LLC and Keren Ben Shimon v. BH 150 Second Avenue, LLC. A key issue at stake in this dispute was the enforceability of a liquidated damage clause. Here, our Miami commercial litigation lawyers discuss the important facts of this case and explain what it tells us about the enforceability of liquidated damages provisions in Florida.
Case Analysis: Liork, LLC and Keren Ben Shimon v. BH 150 Second Avenue, LLC
Background and Facts
In 2013, BH 150 Second Avenue, LLC solicited investment from accredited investors for a high-end real estate project. Under United States securities regulations, an accredited investor is one who has a sufficiently high net worth. The goal of the business venture in this case was relatively simple: purchase a large office building in downtown Miami in order to convert it into condominiums. Keren Ben Shimon was one of the investors in this project.
The investment into this project was to be made in multiple stages. In December of 2013, approximately, one month prior to closing, the final payment was due. At this time, Ben Shimon notified BH 150 that she needed additional time to make this payment. Further, she indicated that was not interested in accepting a loan from another investor. Eventually, she defaulted on the final payment, and BH 150 responded by obtaining additional investment from another party.
The Liquidated Damages Clause is Enforceable
Within the investment contract, there was a liquidated damages clause that allowed BH 150 to retain Ben Shimon’s initial investment in the event of a default. Ben Shimon argued that this liquidated damages provision was unenforceable under Florida law. She argued that it was so severe that it amounted to an impermissible penalty clause. However, the appeals court disagreed with this argument. The appeals court stated that a liquidated damages clause is enforceable if:
- Damages are unclear at the time of contract formation; and
- The liquidated damages provision is a reasonable estimate of the possible actual losses associated with a breach of contract.
In this case, the appeals court ruled that the liquidated damages clause met both of these key legal requirements. First, the court noted that real estate prices are inherently volatile. As such, damages for a lost real estate opportunity are by definition unclear at the time of contract formation. In addition, the liquidated damages clause must be measured with consideration to the amount at stake in the project. Therefore, it was not grossly disproportionate. This case should serve as an important reminder that Florida business owners and investors must carefully consider any liquidated damages provisions with their contracts.
Contact Our Florida Business Law Attorneys Today
At Pike & Lustig, LLP, our contract litigation lawyers have extensive experience handling disputes over liquidated damage clauses. To get immediate assistance with your case, please reach out to us today for a free consultation. With offices in West Palm Beach and Miami, we serve business law clients all around South Florida, including in Homestead, Kendall, Key Biscayne, Palmetto Bay, and Coral Gables.