Real estate leases are, by their nature, bets the parties are placing on what the future may hold. Both landlord interests and tenant interests try to hedge their bets by inserting clauses to produce certain results in the event of an uncertain future. Chief among these mechanisms are liquidated damages clauses that seek to give to the event of breach of the contract at an unpredictable time with unpredictable consequences, certain quantification. The importance of liquidated damages clauses are two-fold: They make the tenant think twice before breaching the lease or overstaying it, thus reducing the traffic in landlord-tenant court; and they allow the landlord an award of its full damages as it envisioned them at the time of the writing of the lease.
Pushing the Limits
Any attorney drafting contracts on a regular basis knows two different client goals for liquidated damages clauses.
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