Liquidated Damages Clause Is an Unenforceable Penalty

December 22, 2022

What Happened: There was no dispute that a Chicago hair lice removal salon that stopped paying its nearly $5,000 monthly rent was in default under the lease. The issue was whether the landlord could enforce the lease clause granting it 27 months of future rent as liquidated damages. The lower court ruled that the clause was enforceable, and the tenant appealed.

Ruling: The Illinois appeal court reversed, finding the liquidated damages clause void as a matter of public policy.  

What Happened: There was no dispute that a Chicago hair lice removal salon that stopped paying its nearly $5,000 monthly rent was in default under the lease. The issue was whether the landlord could enforce the lease clause granting it 27 months of future rent as liquidated damages. The lower court ruled that the clause was enforceable, and the tenant appealed.

Ruling: The Illinois appeal court reversed, finding the liquidated damages clause void as a matter of public policy.  

Reasoning: Although it didn’t use the word “accelerate,” the clause plainly stated that the landlord “shall be entitled to recover. . . a sum equal to the amount of unpaid rent. . . for the balance of the term hereof” if the tenant defaulted. In this situation, the balance of $173,502 for unpaid rent during the balance of the term would be a windfall for the landlord. That amount was unreasonable and totally out of line with the landlord’s actual losses, the court concluded.

  • 2336 N. Clark, LLC v. Hair Fairies, Inc., 2022 IL App (1st) 211597-U, 2022 Ill. App. Unpub. LEXIS 1952

 

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