What is a liquidated damages clause?

A liquidated damages clause is a contractual agreement that specifies a certain amount of money to be paid if one party breaches or fails to fulfill an agreement. This clause is common in contracts for services, employment, and construction projects. In Washington state, liquidated damages clauses are regulated by contract law. The clause must be reasonable, which means it must be an amount that accurately reflects the cost of the breach. For example, if the breach results in a loss of $1,000, then the damages clause must specify an amount that is close to that amount. Additionally, the damages must not exceed the actual harm suffered by the non-breaching party. In Washington state, it is also required that the clause has a clear and detailed explanation as to how the amount was determined. This is to prevent parties from simply selecting an arbitrary amount, or a figure that is too high or too low. The amount stated in the liquidated damages clause must also be proportional to the contract terms, as well as the expected outcome of the breach. When considering the use of a liquidated damages clause, both parties must carefully review the language, as well as the stated amount. This is to ensure that the clause reflects a reasonable value, and is consistent with the agreement, as well as the laws of Washington state.

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