Reviewing a liquidated damages clause

A liquidated damages clause fixes in advance the sum payable for a breach, most commonly a sum per day or week of late delivery or late completion, so that the innocent party recovers it without proving its loss. The clause is enforceable if it protects a legitimate interest and is not out of all proportion to it, and unenforceable as a penalty if it is; and its operation depends on the trigger, the extension of time provisions and what happens when the contract is terminated before the work is done. I review the clause from whichever side instructs me and return it marked up with a written explanation of whether it is enforceable, what it produces, and the changes the other side will accept, for a fixed fee of £495 in three working days.

Who this is for

Contractors, suppliers and service providers in England and Wales asked to accept liquidated damages for delay or performance failures, and customers, developers and employers wanting a clause that holds, in construction, engineering, supply, software implementation and events contracts. Both parties are businesses.

What to look for in a liquidated damages clause

The rule against penalties

In Cavendish Square Holding BV v Makdessi [2015] UKSC 67 the Supreme Court restated the test: a clause fixing a sum payable on breach is a penalty, and unenforceable, if it imposes a detriment out of all proportion to any legitimate interest of the innocent party in the performance of the contract. The sum no longer has to be a genuine pre-estimate of loss, but it must be justified by an interest the innocent party can point to, and the review asks the party imposing the clause what that interest is and drafts the rate so that it can be defended, while for the party paying it tests the rate against the losses delay would in fact cause.

The rate, the cap and the arithmetic

The clause should state the rate, the period it applies to, the point at which it starts and a cap, since an uncapped daily rate on a long delay produces a sum that may itself look penal. The review runs the arithmetic, checks that the cap is a proportion of the contract price the party paying can bear, and, for the receiving party, checks that the cap does not leave it under-compensated for a delay that costs it more than the cap, in which case a right to terminate at the cap is needed.

The trigger, the completion date and extensions of time

Liquidated damages for delay depend on a fixed completion date, and if the customer causes delay without a mechanism to extend the date, the date is lost and with it the right to liquidated damages, leaving the customer to prove its loss. The review checks that the clause has an extension of time mechanism for delays the customer causes and for events the contract recognises, that the trigger is a defined completion or delivery event, and that partial completion and sectional completion are dealt with.

Sole remedy and the losses outside the clause

The clause should say whether liquidated damages are the customer's sole remedy for the delay they cover, so that the customer cannot claim general damages on top, and should say what remedies remain: termination for prolonged delay, and damages for losses other than delay. The review checks the sole remedy provision from both sides, so that a contractor knows the limit of its exposure for delay and a customer keeps its other remedies.

Termination before completion

Where the contract is terminated before the work is complete, the question is whether liquidated damages accrue up to termination and general damages after it, or whether the clause falls away entirely. In Triple Point Technology Inc v PTT Public Company Ltd [2021] UKSC 29 the Supreme Court held that, in the absence of clear words, liquidated damages accrue until termination and the customer's remedy for the period after termination is general damages. The review drafts the clause so that it says which of those applies, rather than leaving it to the courts.

Construction, consumers and the interaction with other clauses

In a construction contract the liquidated damages clause interacts with the payment notice regime under sections 110A and 111 of the Housing Grants, Construction and Regeneration Act 1996, since a deduction of liquidated damages from a payment needs a pay less notice, and the review checks the two together. Where the paying party is a consumer, a term requiring a disproportionately high sum in compensation is on the grey list in Schedule 2 to the Consumer Rights Act 2015 and may be unfair under section 62. The review also checks that liquidated damages count towards the liability cap and that interest under the Late Payment of Commercial Debts (Interest) Act 1998 runs on liquidated damages that have become a debt.

What it costs

Standard review, £495. Marked-up document and a written explanation of the changes. Three working days.

Buying online forms the engagement on payment. The scope is what the contract review page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• Your own contract returned with my amendments as tracked changes, plus a clean version with every change accepted, ready to send to the other side
• Comments in the document where a point needs explaining
• A written explanation of what I have changed and why, by email or as an attachment if it is lengthy, marking the points I would hold firm on and the ones that are negotiable
• A view on what is normal market practice and what is the other side pushing their luck
• One round of follow-up questions by email, included

What is not included

• Negotiating directly with the other side, which I quote separately once I know who is on the other side. Where the other side is willing to share a live document, I can work in that document directly
• Drafting a replacement contract from scratch
• Advice on the law of any jurisdiction other than England and Wales
• Tax, accounting or regulatory advice
• Disputes about a contract that is already signed

Questions I am often asked

The liquidated damages are far higher than any loss the customer could suffer. Are they enforceable?

Only if the customer can point to a legitimate interest that justifies them; a sum out of all proportion to it is a penalty and unenforceable. The review tests the rate against the customer's likely losses and, for the party paying, sets out the challenge; for the receiving party, drafts a rate it can defend.

We caused some of the delay. Can we still claim liquidated damages?

Only if the clause has an extension of time mechanism that lets the completion date be moved for the delay you caused; without one the date is lost and so is the right to liquidated damages. The review checks the mechanism and drafts one if it is missing.

We terminated the contract before the work was finished. Do liquidated damages still apply?

Unless the clause says otherwise, they accrue up to termination and general damages apply after it, following the Supreme Court's decision in Triple Point Technology Inc v PTT Public Company Ltd. The review checks your clause's wording and what you can recover for each period.

Related guidance and services

• Contract review, £495, the service this page describes
• Terms and conditions drafting, £995
• Reviewing a limitation of liability clause
• Reviewing a construction subcontract from a main contractor

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: September 2026. Email geoffrey@caesar.co.uk.