Liquidated Damages

Damages payable by either party for default, or another act or omission, including indemnity for loss or diminution of anticipated tax benefits or loss or damage to lessor's residual interest, may be liquidated in the lease agreement but only at an amount or by a formula that is reasonable in light of the then anticipated harm caused by the default or other act or omission. In the absence of the terms a liquidation clause, 20 percent of the then present value of the total rent the lessee was obligated to pay for the balance of the lease term, or, in the case of a consumer lease, the lesser of that amount or $500. (AS 45.12.504)

Generally, parties to a contract are free to stipulate in advance an amount to be paid as compensation for loss or injury which may result in the event of a breach of the contract, and such stipulations are valid and enforceable. Carr-Gottstein Properties, Ltd. Partnership v. Benedict,

72 P.3d 308, 311 (Alaska 2003). Courts must determine on a case-by-case basis whether a damages provision is a valid liquidated damages clause or an unenforceable penalty. Id. Essentially, the court will look at two factors in determining whether a liquidated damages clause is enforceable: (1) if it would have been difficult to ascertain actual damages and (2) if the liquidated amount is a reasonable forecast of the damages likely to occur in the event of breach. Zerbetz v. Alaska Energy Ctr., 708 P.2d 1270, 1281 (Alaska 1985).