Thursday, June 14, 2007

Penalty clause in commercial real estate contract declared invalid

In ACL Realty Corp. v. .Com Properties, LLC, Judge Conrad of the W.D. Va. declared invalid as a penalty a provision in a real estate contract, where the contract provided separately for liquidated damages and the amount of money to be paid under the contested provision was disproportionate to any actual damages.

I tried to argue something similar related to the late fees in an equipment lease, not too long ago, citing among other cases Abbs's Moving Service v. Wooldridge, 612 So. 2d 449, 452 (Ala. 1993) ("We have considered the argument that the late fee provisions of the lease should be declared a penalty and, therefore, void as against public policy. We conclude from a reading of the lease--which allows for a 5% charge for rent 5 days overdue and then an additional 5% charge for every 30 days thereafter that a portion of the rent is outstanding--that the lease imposes a penalty.")

Under Va. Code § 8.2A-108(1), a court can refuse to enforce an unconscionable term in an equipment lease.

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