This clause sets a fixed amount of money you must pay if you break a specific part of the contract, instead of the other party having to prove their actual loss in court. For example: "If you miss the delivery deadline, you pay £500 per day." UK and US courts will enforce this only if the amount is a genuine pre-estimate of real harm—not a penalty designed to punish you. If the court thinks it's a penalty (the amount is way too high compared to realistic losses), they can refuse to enforce it.
Check whether the fixed amount seems reasonable for the actual harm it would cause. If you're paying £500/day for a late delivery on a £2,000 contract, that's probably a penalty and a court might strike it out—but don't rely on that. Negotiate the amount down to something proportionate, and ask for the clause to apply only to breaches within your reasonable control. Get clarity on exactly which breaches trigger the payment. ---
Frequently Asked Questions
What does this clause mean in simple terms?
This clause sets a fixed amount of money you must pay if you break a specific part of the contract, instead of the other party having to prove their actual loss in court.
Why should I care about this clause?
For example: "If you miss the delivery deadline, you pay £500 per day." UK and US courts will enforce this only if the amount is a genuine pre-estimate of real harm—not a penalty designed to punish you.
What are my options?
If the court thinks it's a penalty (the amount is way too high compared to realistic losses), they can refuse to enforce it.