Clause guide
Liquidated Damages Clause clause: meaning, risks, and what to negotiate
Sets a predetermined amount payable if certain obligations are breached.
What it means
Liquidated damages clauses provide certainty by defining compensation in advance.
Common risks
- • The damages amount may be excessive.
- • The clause may act as a penalty.
- • You may face automatic financial liability.
What to check before signing
- • How damages are calculated.
- • Whether the amount reflects genuine loss.
- • Whether it applies symmetrically.
Negotiation ideas
- • Ensure the amount reflects realistic losses.
- • Cap the total liability.
- • Limit the clause to specific breaches.
Example clause
“If delivery is delayed beyond the agreed deadline, Supplier shall pay liquidated damages equal to 1% of contract value per week of delay.”
Frequently asked questions
What are liquidated damages?
They are pre-agreed compensation amounts for specific contract breaches.
Related clauses
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