Was $2.3M Liquidated Damages Provision Enforceable Upon Ventures’ Breach?
RDF Agent LLC and Electric Red Ventures, LLC and others entered into a preliminary term sheet, dated July 23, 2021, in contemplation of RDF potentially lending Ventures up to $230 million to finance a real estate development project in Arizona. The term sheet provided that it was not binding except for certain paragraphs, including the paragraph entitled “Exclusivity.”
Under the exclusivity provision of the term sheet, RDF had the “exclusive right” to provide the loan for the project “for a period of sixty . . . days following the later of (i) execution date hereof, and (ii) receipt of the expense deposit [to be made by Ventures].” The 60-day exclusivity period would be “extended to the extent of any delays” attributable to Ventures, or if Ventures was “not prepared to close on the terms set forth herein,” which terms included Ventures’ obligation to provide a specified amount of equity financing for the project. During the exclusivity period, Ventures agreed “not to, directly or indirectly, solicit, make, accept, negotiate, entertain, or otherwise pursue or contact any other persons in respect of financing or any other transaction that may be an alternative to, or may interfere with, the transactions contemplated herein.” The exclusivity provision specified, as RDF’s remedy for a breach by Ventures, liquidated damages in the amount of $2.3 million, or one percent of the maximum amount of the contemplated loan, plus all costs of collection, including attorney’s fees and court costs.
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