Liquidated Damages

When a real estate deal goes bad, one party may be entitled to payment in the form of liquidated damages. This sum of money is set out in the initial purchase contract for the real estate. By law, liquidated damages can only be collected to compensate an injured party, not to punish the party that broke the contract. If an amount of liquidated damages is not agreed upon in the writing of the initial contract, this amount is said to be "at large," and it would be up to a court of law to determine an appropriate amount to pay the injured party. As an example, if someone offers to rent a storefront to an individual but then refuses to lease the property at the appointed time, a liquidated damages clause could reimburse the individual who was supposed to rent the property for lost sales.