Liquidated damages are an agreed-upon amount of damages or an agreed-upon way of calculating damages that will be used if there is a breach of contract. Typically, the liquidated damages available to a seller in a real estate transaction is the buyer’s escrow deposit.
Liquidated damages provisions may not be enforceable if any of the following apply:
Reasonableness – The liquidated damages provision is not reasonable under the circumstances. See Valenti v. Coral Reef Shopping Center, Inc., 316 So.2d 589 (Fla. 3d DCA 1975).
Penalty – The liquidated damages provision is deemed to be a penalty rather than a fair amount of compensation for the non-breaching party. See Hutchinson v. Tompkins, 259 So.2d 129 (Fla. 1972). Beware that if the contract provides the seller the option to choose between liquidated damages or actual damages, then the liquidated damages provision will be considered a penalty and unenforceable. See Lefemine v. Baron, 573 So. 2d 326, 328 (Fla. 1991).
Unconscionable – The liquidated damages provision is deemed to be unconscionable. See Hutchinson v. Tompkins, 259 So.2d 129 (Fla. 1972).
Choice of remedies – If one party has a choice of possible remedies while the other party does not have predetermined remedies. See Ropiza v. Reyes, 583 So.2d 400 (Fla. 3d DCA 1991). For instance, if the liquidated damages provision provides that the buyer’s sole remedy is a return of the buyer’s escrow deposit while the seller has a choice of remedies, then the liquidated damages provision will probably be unenforceable. See Hackett v. J.R.L. Dev., Inc., 566 So.2d 601 (Fla. 2d DCA 1990).
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