Bill Increasing Liquidated Damages Advances

Assembly Bill 1406 (Ward), would increase the amount of liquidated damages presumed reasonable upon a contractual default by the buyer/occupant of residential property, from three to ten percent of the purchase price when the residential property is a newly constructed condominium.

​An amount over ten percent would be invalid unless the party seeking to uphold the higher amount establishes that the amount actually paid is reasonable as liquidated damages. The bill passed the Assembly Judiciary Committee on a 7-3 vote. The California Association of Realtors and the California Land Title Association are jointly opposed to the bill on the grounds that California’s liquidated-damages framework for owner-occupant buyers exists to protect homebuyers from disproportionate financial loss and AB 1406 would turn that purpose on its head by increasing the potential forfeit by buyers of unreasonable sums that bear little relationship to any actual harm.