Background
I74 Wired hired Queen City Cleaning to clean its commercial office building for $3,900 per month, payable in two installments. The agreement included a 2% daily late fee and required 30 days’ written notice to terminate. After I74 Wired gave notice on June 20, 2021, it revoked Queen City’s building access five days later.
In an earlier appeal, the First District held that the agreement remained effective during the 30-day notice period and remanded Queen City’s breach-of-contract claim. Following a bench trial, the parties stipulated that Queen City’s actual unpaid damages were $4,420. Queen City also sought $174,975.20 in accumulated contractual late fees.
The Court’s Holding
The court affirmed the trial court’s refusal to enforce the 2% daily late-fee provision. Although the trial court had called the provision unconscionable, the appellate court treated the controlling question as whether it was an enforceable liquidated-damages clause or an unenforceable penalty.
Applying Ohio’s liquidated-damages test de novo, the court held that the clause failed because Queen City’s potential damages at contract formation were readily ascertainable: payment for cleaning already performed and for the 30-day notice period. The late fee therefore did not estimate uncertain damages, but added a punitive charge beyond actual loss. The court also held that Ohio law did not require reformation of the invalid clause and upheld the $4,420 award plus statutory prejudgment interest at 3% from July 21, 2021.
Key Takeaways
- A daily late fee is unenforceable as liquidated damages when the anticipated breach damages are readily calculable.
- Courts may decline to enforce a penalty clause rather than reduce it to a commercially reasonable rate.
- Once a late-fee clause is unenforceable, contract recovery is limited to actual damages proven, plus applicable interest.
Why It Matters
The decision underscores that calling a charge a late fee does not make it enforceable. Businesses using aggressive daily-rate fees should be able to show that the charge reasonably estimates damages that would be uncertain and difficult to prove when the contract is made.
It also confirms that a party cannot use an invalid liquidated-damages provision to obtain a large recovery from a comparatively small, readily measurable unpaid balance.