Max fee or penalty that you can enforce on TX contract (construction, roofing)
May 12, 2020
Very generally speaking, pure penalties are not enforceable under Texas contract law. Instead, payments owed must be correlated to some type of loss incurred by the non-breaching party. This often plays out in construction contracts in the form of pre-agreed "termination fees" which state that they are based upon overhead, profit, mobilization costs etc. that have been incurred or otherwise would have been earned as the case may be. There is not set upper limit, but the higher the termination fee, the more likely the fee is to be stricken as an improper penalty, although the likelihood of this occurring is pretty low overall as Texas courts allow the contracting parties broad discretion in the terms they agree to.
If you are performing residential roofing you have to be especially careful as there are a host of consumer protection laws that apply specifically to that field within the construction industry. The fines for violating these contractual requirements can be very steep. It is extremely important to have an attorney review this type of contract before utilizing such a form en masse.
Generally, this would all depend on what is in your contract. The terms of the contract could include late fees, interest and penalties. There are also differences between residential and commercial jobs, so I would need to know what type of job this is and see your contract to best answer your question. Usury (illegal interest) laws in the State of Texas do cap interest at 18%, but for example, your contract could allow delay damages of $1,000 per day or higher before any interest. I would not agree to terms in a contract that you think is unreasonable, because it most likely will be enforced.
Feel free to reach out if you have more questions.
Courtney E. Stricklen
Lead Senior Associate Attorney
8431 Katy Freeway
Houston, TX 77024
Tel: (713) 715-7334
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