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Understanding liquidated damages clauses in business contracts

On Behalf of | Feb 15, 2022 | Breach of Contract |

The unfortunate truth of business contracts is that people do not always perform their end of the bargain the way they say they will. Contract breaches are relatively common, and they cause countless headaches for business owners and executives. While many contract breaches give rise to costly and time-consuming litigation, sometimes that process can be made much simpler through the use of a liquidated damages clause.

What liquidated damages clauses do

If a contract contains a liquidated damages clause, it lays out the exact amount that a party to the contract agrees to pay to the other party if they are unable to fulfill the terms of the contract. In other words, it serves to reimburse a party a specific amount for their loss in the event of a breach.

Liquidated damages are not penalties for breaching a contract. Rather, they are a predetermined reimbursement that the parties agree to pay if the contract is not performed as intended. That means that they are a reasonable approximation of the actual damages that a breach would cause.

How they can help your business

Liquidated damages are most helpful in situations in which the actual amount of damages is difficult to calculate or can be speculative. If you and the other party agreed to a specific amount of liquidated damages while negotiating the contract, then you won’t have to litigate over the amount of damages in court later during a lawsuit for breach. You can simply seek the enforcement of the contract on its terms.

Crafting thorough and functional business contracts is an art, and there are many different tools that you can use to make them function the way you want them to. A liquidated damages clause is just one of these tools that you have at your disposal that can help you to protect your company financially as you do business with others.

Founded in 2015, Brick Business Law, P.A. represents clients throughout Tampa Bay and the State of Florida.  Brick Business Law provides legal representation throughout Florida courtrooms and boardrooms. If your business needs to vigorously pursue a claim, expertly defend a lawsuit or just needs a trusted day-to-day legal advisor, we are the Florida firm that is prepared to be hyper-focused on your business’s legal needs. Please contact the Firm directly if you have any questions regarding this announcement or other matters, 888-708-4250 or through our online contact form.