Liquidated Damages Clause Example

Sample Contract Language
liquidated damages or penalty

People often come to the blog looking for a sample liquidated damages clause. Although I have a nice little piece explaining liquidated damages provisions and cautioning people to avoid including penalty provisions in their contracts, I haven’t provided sample language.

Liquidated damages clauses should be tailored to the specific situation — this is particularly important because courts won’t enforce penalty provisions. Thus, it’s important that (1) your clause not in fact be a penalty provision and (2) the liquidated damages clause clearly reflect an attempt to compensate the non-breaching party.

Here’s a sample provision modified from Stephen R. Guth’s sample hotel services agreement:

Overbooking by Hotel.  If the Hotel over-books, then, within 14 calendar days of the occurrence of the over-booking, the Hotel shall pay to the Customer as liquidated damages, and not as a penalty, an amount equal to 30% of the average Room Rate for each Guestroom Reservation that the Hotel is unable to accept prior to the Reservation Cut-off Date.

For a discussion on whether it’s necessary — or advisable — to include “as liquidated damages, and not as a penalty,” as well as for an alternative approach, see Ken Adams’s piece “As Liquidated Damages and Not As a Penalty.”

6 comments… add one
  • George Incampo Apr 3, 2013 Link Reply

    Can liquidated damages be in addition to other damages or must a party elect between the two types of damages?

  • Jailani Jul 27, 2015 Link Reply

    Can the client charge the Liquidated Damage for the period surpassed over the agreed completion date by the Contractor DESPITE THE CLIENT DOES NOT MEET ANY LOSS. But the Liquidated Damage amount is agreed by both the parties even during the agreement stage itself.

    • Marc Arnecke Jan 25, 2017 Link Reply

      Dear Jailani,

      In accordance with my understanding, one party of a contract must be incurred a real damage by the fact that the other party has not complied with a specific obligation. In the event of a date being surpassed, it is likely that a damage has occurred, but does not have to be the case automatically.
      If I do not complete a house up to a certain agreed date and the employer can not move in due to delays, I am sure there are liquidated damages. For example unforeseen rental costs, extra storage costs for already delivered furniture, but also possibly extra cost for extended time for a consultant or the like etc.
      In my opinion, the situation described by you above is rather a situation in which penalties are claimed.
      The provision in a contract is made to secure the rights of the client in case of delays or the like events, or more specific in case of incurred damages. It is usually quantified in the contract as a percentage or the like, because the real damage at that point of time is uncertain and cannot be calculated.
      BR Marc

  • Gowri Shankar Jan 24, 2017 Link Reply

    why the LD should be maximum 5 % or 10 % of the contract , why cant it be 20 or 30 % whichever the the contractor wish?… Is there any law ??

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