A recent opinion by New York’s highest court (J. D’Addario & Co. v. Embassy Indus., Inc. Slip Op 07850, Court of Appeals) held that a seller’s "sole remedy" of retaining the purchaser’s deposit as "liquidated damages" means just that – that’s all you get (i.e., no court-imposed interest unless you expressly say so).

In the J. D’Addario case, after the purchaser failed to timely close on the real estate purchase, it had its 10 percent deposit at risk. Both sides blamed the other and the deposit sat in escrow during the litigation. Seller won the case at trial and was entitled to the escrowed deposit. The trial court also awarded seller the New York statutory 9 percent court-imposed interest (under the NY CPLR). On appeal, the court determined that the purchaser was not liable to pay even court-imposed interest, because per the language of the contract, the escrow deposit was the full measure of seller’s damages.

The takeaway is that if you have an "exclusive remedy" liquidated damage clause in your contract of sale (and we all do!), don’t expect to recover any interest or, based on the logic of this case, any attorneys’ fees or court costs, unless you expressly add it to the basket of recoverable damages. This ruling may embolden buyers to drag out litigation if they fail to close because they do not risk the imposition of additional interest or costs. At the same time, we have at least been clearly warned and can draft seller protections for future deals.