What type of damage can be avoided by including a liquidated damages clause?

Including a liquidated damages clause in a contract specifically aims to address monetary damages that may arise in the event of a breach. This type of clause stipulates a predetermined amount of compensation that the breaching party must pay to the non-breaching party if a breach occurs. By clearly defining the financial repercussions beforehand, both parties have a clearer understanding of what to expect, thereby minimizing the uncertainty and potential disputes over the amount owed.

Liquidated damages are generally used in scenarios where actual damages might be difficult to determine or quantify precisely. The clause serves to streamline the process of addressing any breaches, avoiding prolonged negotiations or litigation regarding the cost of such breaches. Therefore, with a well-defined liquidated damages clause, the parties can effectively bypass many monetary disputes that could otherwise arise from a breach of contract.