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By: Jerrell Williams
You've thought of everything. You've considered all that could
go wrong with the project. In fact, the owner or your subcontractor even
agrees in the written contract that if certain circumstances occur that
would result in a loss to you (for example, the project owner fails
provide you with access to the property by a certain date), you will be
paid a specific amount of money, or the contract price will be increased
or the subcontract price will be decreased by a certain amount to cover
your costs and losses. This is a liquidated damages clause.
The appeal of a liquidated damages, or see it seems at first,
is that you and the other party can avoid the expense of litigation if
something goes wrong-you are identifying the solution before the problem
arises. Simple, right?
When is anything ever as simple as it seems? Liquidated
damages clauses can be challenged. In fact, you may find yourself on the
side of wanting to challenge such a clause. Some challenges upheld by
Virginia courts include the assertions that: 1) the amount of liquidated
damages actually constitute a penalty fee, 2) the amount of the
liquidated damages is not a reasonable assessment of losses expected to
be incurred, at the time the contract was made, or 3) the losses
anticipated by liquidated damages clause were actually definite and
But you can increase the likelihood of surviving a challenge
to your liquidated damages clause by including in the contract a clause
by which the other party agrees to waive the right to challenge the
validity and enforceability of the liquidated damages clause. In Gordonsville Energy v. Va. Elec. & Power Co.,
257 Va. 344, (1999) [enhanced version available to lexis.com subscribers], the Virginia Supreme Court upheld just such a
waiver of rights clause. Of course, almost anything can be challenged
and it would be wise to have an attorney review any contract that you
are considering signing.
Authored by attorneys, these articles are meant to bring
awareness to these topics and are not intended to be used as legal
advice. For more information, contact Mike Sterling at 757-446-8626 or Bill Franczek at 757-446-8600. Visit www .vanblk.com , for our library of Construction Law Tips. Suggestions for a topic? E-mail firstname.lastname@example.org.
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