Liquidated damages

Damages that are ascertained at the outset of a contractual arrangement between parties to compensate an injured party for a specific breach of the contract by the other party.

Damages can be liquidated in a contract only if the injury is uncertain or difficult to quantify, the amount is reasonable and considers the actual or anticipated harm caused by the breach and the damages are structured to function as damages and not as a penalty. If these criteria are not met, a liquidated damages clause will be void.