Paul purchases a $400,000 investment property (a 6-unit apartment building) in Los Angeles. He deposits $20,000 as earnest money and both parties initial the liquidated damages clause. Paul later defaults on the contract. Under California Civil Code §1675, how is Paul's deposit handled?
Correct Answer
C) The 3% cap does not apply, so the liquidated damages amount depends on the contract terms and reasonableness
California Civil Code §1675's 3% presumptive cap on liquidated damages applies only to residential property of 1-4 units intended for buyer occupancy. A 6-unit apartment building is an investment property with more than 4 units, so the 3% cap does not apply. The liquidated damages amount is governed by the general reasonableness standard under Civil Code §1671.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Specific performance is a court-ordered remedy that compels the breaching party to fulfill their obligations under the contract rather than simply paying monetary damages. It is an equitable remedy used when monetary damages would be inadequate.
The Statute of Frauds is a legal requirement that certain types of contracts must be in writing and signed to be enforceable. In real estate, all contracts for the sale of land or interests in land must be in writing.
A time is of the essence clause in a contract means that all deadlines and dates specified in the agreement are strictly enforceable, and failure to meet them constitutes a material breach.
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