It is common for a commercial lease to contain a provision that obliges a party to pay a pre-calculated amount of money in the event of a default, or a set of circumstances that may be characterized as a "failure". these provisions are either considered to be a penalty or a genuine estimate of damages. At law, most often, penalty clauses are unenforceable (and therefore not payable by the offending party), whereas liquidated damages are enforceable if they are reasonable.
The question inevitably arises as to what factors are needed to characterize a clause as liquidated damages as opposed to a penalty. This characterization can be the difference between the failing party paying nothing versus hundreds of thousands of dollars.
Read the full article here: Penalty Clauses Do They Stick
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