Is Your Liquidated Damages Clause Enforceable Under Florida Construction Law?
Florida construction contracts encompass numerous provisions, from the basic payment terms conditions and scope of work to specific conditions and the schedule to which the parties agree. While any section can be vague or confusing, it is the liquidated damages clauses that quite often lead to conflicts and disputes. This is due to the special treatment of liquidated damages when it comes to enforceability under Florida construction law. If the contract does not comply with legal requirements, the provision may be null and void – so one party loses out on the predetermined damages it would have received due to the other’s breach.
As such, the most effective strategy for being able to seek liquidated damages is to ensure that the provision is enforceable at the outset. A Florida construction contracts lawyer can explain the legal requirements and assist with drafting, but you should understand the basics about enforcement of liquidated damages clauses.
Why Enforceability is Essential for Liquidated Damages Clauses: Put simply, if the parties cannot enforce a liquidated damages provision in a construction contract, neither can take advantage of it when the other breaches. A liquidated damage clause serves one primary objective: Requiring the party in default to pay a predetermined amount to the other as compensation for the losses the non-breaching party sustains. If a dispute results in court action, one of the first issues a judge will review is whether the liquidated damages clause is valid and enforceable. When found unenforceable, the non-breaching party cannot take advantage of the relevant terms.
Test for Enforceability: For a court to determine that a liquidated damages clause is valid, the language must meet a three-prong test:
- It must be evident from the construction contract and project that the true damages for a breach are not ascertainable at the time the parties execute the agreement.
- The liquidated damages amount must be a reasonable estimate of the losses a non-breaching party may suffer due to the other’s default.
- The amount of liquidated damages cannot be viewed as a penalty to the breaching party, so it must have some relationship to what the non-breaching party could really lose.
Beware of Specific Unenforceable Clauses: In general, the parties cannot contract around the five-year statute of limitations under Florida law through a liquidated damages clause. A judge is also not likely to enforce a provision in which the type of or amount of remedies are not provided to both parties. When there is a great disparity between actual losses and the amount stated in the liquidated damages clause, the court is more likely to view it as a penalty – and therefore unenforceable.
Contact a Florida Construction Contracts Attorney About Liquidated Damages
This overview of liquidated damages clauses may be helpful, but there are many other subtleties you need to understand about Florida construction agreements. You can trust our team at Linkhorst & Hockin, P.A. to assist with drafting, negotiations, and review, so please contact our offices today. We can schedule a consultation with an experienced Florida construction contracts lawyer who can advise you on contractual issues.