When is a Liquidated Damages Provision Unreasonable? (An Overview of Florida Law)
When one party breaches a contract, the other party has the right to pursue all available legal remedies. Most often, this involves seeking financial compensation through a breach of contract claim. In Florida, the non-breaching party is generally restricted to recovering for “actual damages.” That being said, parties may opt to include a liquidated damages provision within their contract. These provisions are lawful as long as they are reasonable. In this article, our West Palm Beach contract litigation attorney explains the key things to know about Florida’s law regarding the enforceability of liquidated damages provisions.
What are Liquidated Damages?
Broadly defined, liquidated damages are a specific, predetermined sum of money that two parties agree to in a contract as compensation if one of them breaks the agreement. Put another way, liquidated damages are more or less a “sanction” that one side will pay the other if they breach the contract. These provisions can be desirable as they not only help to reduce the risk of a breach of contract, but they can ensure that both sides know exactly what to expect if a breach happens.
Know the Law: Liquidated Damages in Florida
The parties to a contract have a right to include a liquidated damages clause in Florida. State law holds that this provision can be enforceable as long as it is properly drafted and meets legal requirements. Most notably, under Florida Statutes § 672.718, a liquidated damages provision must be limited strictly to an “amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy.”
Note: Penalty clauses are not enforceable in breach of contract claims in Florida. Liquidated damages must be tied to the expected actual harm. Florida law is clear: If a liquidated damages provision calls for an unreasonably large sum, it can be voided as an unlawful penalty clause.
How is “Reasonable” Defined for Liquidated Damages in Florida?
In Florida, determining what is “reasonable” for liquidated damages is a case-by-case, fact-specific inquiry. The general rule is that the agreed-upon amount should be no larger than the actual expected damages from a breach. Courts look at the time the contract was made—not when it was broken—to figure out if the amount is a reasonable forecast of just compensation given the specific circumstances. A liquidated damages provision could still be enforceable even if the actual breach produced far less damages than expected—as long as it was a reasonable forecast when written.
Get Help From Our West Palm Beach Contract Lawyer Today
At Pike & Lustig, LLP, our West Palm Beach business attorney is standing by, ready to protect your best interests. If you have any questions about the enforceability of a liquidated damages provision, we are here to help. Give us a phone call now or contact us online for your confidential case assessment. We help clients with liquidated damages issues in Palm Beach County, Miami-Dade County, Broward County, and communities beyond.