Tom offers $750,000 for a single-family home in Los Angeles using the C.A.R. RPA. His initial deposit is $30,000. The liquidated damages clause has been initialed by both parties. Tom later breaches the contract without justification. The seller wants to keep the entire $30,000 deposit as damages. Under California Civil Code §1675, what is the likely outcome?
Correct Answer
D) The seller may retain only $22,500 because liquidated damages are capped at 3% of the purchase price
Under California Civil Code §1675, liquidated damages for residential one-to-four unit properties are presumed valid only up to 3% of the purchase price. Three percent of $750,000 is $22,500. Even though the deposit was $30,000, the seller can only retain $22,500 under the liquidated damages provision and must return the excess $7,500.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Contract termination occurs when a contract is ended or discharged, releasing both parties from their obligations. A contract can be terminated through performance, mutual agreement, operation of law, or breach.
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
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