Liquidated Damages In Florida

At Perez Mayoral, P.A., a Florida-based business litigation law firm, we regularly advise businesses on the enforceability of contract provisions, including liquidated damages clauses. These clauses can help avoid lengthy litigation by defining in advance the consequences of a breach, but Florida courts examine them closely. If you need help drafting or enforcing a contract, call or email our Miami, FL small business lawyer today.

Liquidated damages clauses specify a sum that one party must pay if they breach the contract. They are commonly used in construction contracts, real estate agreements, and service contracts. While these clauses can simplify enforcement and provide certainty, they are only enforceable under Florida law if they meet specific criteria.

Florida’s Two-Part Test

The Florida Supreme Court has held that a liquidated damages clause is enforceable only if:

1. The damages were difficult to ascertain at the time the contract was made
2. The amount specified is a reasonable estimate of the probable loss

See Lefemine v. Baron, 573 So. 2d 326 (Fla. 1991). If either condition is not met, the clause may be deemed a penalty and will not be enforced.

For contracts involving the sale of goods, Florida’s Uniform Commercial Code applies. Under Fla. Stat. § 672.718, liquidated damages must be reasonable in light of anticipated or actual harm. Any amount that is unreasonably large is considered void as a penalty.

Enforceable Vs. Unenforceable Clauses

Florida courts will strike down liquidated damages clauses that function as penalties or give one party the option to choose between actual and liquidated damages.

In Humana Medical Plan, Inc. v. Jacobson, 614 So. 2d 520 (Fla. 3d DCA 1992), the court invalidated a clause that allowed the non-breaching party to elect between liquidated and actual damages. The court ruled that this option turned the provision into a penalty because it failed to provide a fixed remedy.

Similarly, courts have rejected clauses with arbitrary or excessive daily penalties. For example, a $10,000 per day delay provision in a construction contract was struck down because it lacked a rational connection to actual anticipated losses.

On the other hand, courts uphold liquidated damages clauses when the amount is negotiated, reasonable, and supported by evidence. In Crosby Forrest Products, Inc. v. Byers, 623 So. 2d 565 (Fla. 5th DCA 1993), the court enforced a clause requiring a buyer to forfeit a deposit, even though the amount exceeded the unpaid purchase price. The court emphasized that the parties had bargained for the clause and that it was not intended as a penalty.

In another case, a court upheld a $500 per day delay penalty in a construction contract, finding it was a reasonable estimate of the owner’s daily loss of use and project costs.

Drafting Considerations

• Estimate Damages In Good Faith
  At the time of contract formation, calculate the probable losses resulting from breach, such as lost profits, administrative costs, or delays.
• Avoid Excessive Amounts
  Figures that are clearly out of proportion to actual losses may lead a court to treat the clause as a penalty.
• Do Not Give An Election Of Remedies
  The clause should not allow the non-breaching party to choose between liquidated and actual damages. It should serve as the exclusive remedy.
• Include Mutuality Where Appropriate
  Applying liquidated damages to both parties when applicable shows fairness and avoids claims of unconscionability.

As breach of contract lawyers, we often find that disputes over these clauses can be avoided entirely with proper drafting. Whether you need help with drafting a contract or other breach of contract issues, we are here to help.

Contact Us For A Consultation

If you are entering into a contract that includes a liquidated damages provision or are involved in a dispute over one, Perez Mayoral, P.A. can help. We represent clients throughout Florida in breach of contract and commercial litigation matters. Call or email us today to schedule a consultation.