A Virginia purchase agreement contains a provision stating that if the buyer defaults, the seller shall retain the earnest money as 'liquidated damages' and this shall be the seller's sole remedy. The buyer defaults by failing to appear at settlement without a valid contingency basis. The seller wants to sue the buyer for additional damages beyond the earnest money, arguing the home later sold for $25,000 less. Under Virginia law, what is the MOST accurate statement about the seller's legal position?
Correct Answer
D) The seller is limited to retaining the earnest money as the sole remedy because the liquidated damages clause is enforceable if the amount was a reasonable pre-estimate of damages
Under Virginia law, liquidated damages clauses in real estate contracts are enforceable when: (1) actual damages would be difficult to ascertain at the time of contracting, and (2) the liquidated amount represents a reasonable pre-estimate of damages rather than a penalty. When a valid liquidated damages clause designates earnest money as the sole remedy, the seller is bound by that provision and cannot pursue additional damages. The seller retained the earnest money as agreed.
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Related Topics & Key Terms
Key Terms:
Related Concepts
An inspection contingency gives the buyer the right to have the property professionally inspected within a specified time frame and to negotiate repairs or cancel the contract based on the findings.
Liquidated damages are a predetermined amount of money specified in the contract that the non-breaching party is entitled to receive if the other party breaches. In real estate, the earnest money deposit typically serves as liquidated damages.
Novation is the substitution of a new contract for an existing one, or the replacement of one party with a new party, with the consent of all parties involved. The original party is completely released from all obligations.
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