The Importance of Liquidation in Agreements

What’s a liquidation or penalty clause and why could it be helpful for you? Sometimes you can’t define how much damage will occur in a situation. Let’s say you have a confidentiality clause and someone breaches it by posting something online and you lose a lot of business, but it’s hard to know exactly how much. Maybe there’s a landlord-tenant situation, and it’s hard to specify the exact amount of money damage is caused by the breach. A liquidation or penalty clause or provisions in an agreement that allow you to agree to a specific amount of damages when they’re otherwise hard to define in exact terms. An example might be what the landlord may claim is liquidated damages when you fail to pay rent on time. If the tenant breaches the agreement, you guys agree that there’s going to be a certain sum paid. That sum of money is the penalty clause or is the liquidation clause, and you should have that in every one of your contracts. Consult an excellent business lawyer to know the exact language that will suit your needs.

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