Glossary Term
Liquidated damages are a fixed amount of money written into a lease that you agree to pay if you break the agreement, set in advance instead of calculating actual losses later. The clause is meant to be a fair estimate of what the landlord would realistically lose. If the amount is unreasonably high, courts may treat it as an unenforceable penalty rather than valid liquidated damages.
In short
Liquidated damages are a fixed amount of money written into a lease that you agree to pay if you break the agreement, set in advance instead of calculating actual losses later. The clause is meant to be a fair estimate of what the landlord would realistically lose. If the amount is unreasonably high, courts may treat it as an unenforceable penalty rather than valid liquidated damages.
A liquidated damages clause can determine exactly what you owe if you leave early or default, so it directly affects your financial risk. Knowing when such a clause is enforceable can help you challenge an amount that is really a disguised penalty.
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They are a fixed amount, agreed in advance, that you pay if you break the lease, instead of the landlord proving exact losses afterward.
They can be, if the amount is a reasonable estimate of the landlord's likely loss. If it is excessive, a court may treat it as an unenforceable penalty.
Liquidated damages reasonably estimate actual loss, while a penalty is designed to punish. Courts generally enforce the former but not the latter.
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