Recently, the Massachusetts Supreme Judicial Court issued an opinion that reaffirmed the jurisdiction’s single-look approach to determining the validity of liquidated damages provisions.¹Cummings Properties, LLC v. Hines, 492 Mass. 867 (2023). Liquidated damages provisions are contract terms that provide a specified amount of damages to be paid in case of a breach.²See, e.g., Lloyd v. Niceta, 255 Md.App. 663 (2022). Such provisions are unenforceable if they operate as a penalty.³NPS, LLC v. Minihane, 451 Mass. 417, 420 (2008), quoting TAL Fin. Corp. v. CSC Consulting, Inc. 446 Mass. 422, 431 (2006). How this is determined depends on the particular approach of a given jurisdiction in considering the reasonableness of the damages specified in the liquidated damages provision.⁴See, e.g., Watson v. Ingram, 124 Wash.2d 845, 852-853 (1994). They may be evaluated either at the time of contracting only or in light of the actual harm resulting from a breach.⁵Id. Massachusetts has consistently examined the reasonableness of liquidated damages relative to anticipated damages only—a method known as the single-look approach.⁶Cummings Properties, 492 Mass. at 869-870. In Massachusetts, when the anticipated damages provided for in a liquidated damages clause are a reasonable estimate of future harm, and where the anticipated damages were difficult to ascertain at the time of contracting, those damages will be awarded to the non-breaching party in the event of breach regardless of the actual harm that resulted from the breach.⁷NPS, 451 Mass. at 423.

In Cummings Properties, Inc. v. Hines, landlord Cummings Properties (“Cummings”) entered into a five-year commercial lease with MCO, a service of process company of which Hines was the founder, director, and sole officer.⁸492 Mass. at 869. Hines personally guaranteed this lease.⁹Id. The lease contained a liquidated damages clause stating that damages in the event of a breach by Hines in the form of failure to pay rent would be awarded to Cummings in the amount of the balance of the rent due at that time.¹⁰Id. at 868-879. Soon after the lease term began, MCO failed to pay rent. Cummings then sent a notice of default.¹¹Id. at 869. Cummings re-let the location to a new tenant for a four-year lease after MCO had vacated.¹²Id. Cummings then filed a complaint in Superior Court seeking an award of the balance of the rent as liquidated damages.¹³Id. Hines argued that the rent balance should be reduced by the value Cummings obtained by renting the same location to a new tenant.¹⁴Id. The Superior Court found in favor of Cummings. The Appeals Court, however, reversed on the ground that the liquidated damages provision was an unenforceable penalty because it did not allow for an offset of the amount of damages should Cummings re-let the space.¹⁵Id.

The Supreme Judicial Court, however, affirmed the original Superior Court judgment, citing its longstanding adherence to the single-look approach of determining the validity of liquidated damages provisions.¹⁶Id. at 873, 875. The SJC reiterated the benefits of the single look approach in its opinion. Namely, that rule honors the parties’ expectations at the time of contracting, and also “has the potential to promote certainty, resolve disputes efficiently, and … avoid litigation.”¹⁷Id. at 870. The second look approach, which examines liquidated damages provisions in light of both actual and anticipated harm, in the opinion of the SJC, “encourages an aggrieved party to bring suit” to establish the unreasonableness of the provision.¹⁸Id.

Hines was unable to invalidate the liquidated damages provision. In the Superior Court, Hines had not presented evidence that the damages from a future breach were not difficult to ascertain at the time of contracting.¹⁹Id. at 871. Massachusetts case law also provides that the balance on the remaining term of a lease can be a reasonable estimate of damages that might occur as a result of a breach in the form of rent nonpayment.²⁰Id. at 871-872. The single-look approach does not require liquidated damages in the form of a rent balance to be offset by amounts obtained by re-letting the same space.²¹Id. at 872.

This case reaffirms the approach taken by the SJC in 1999 in Kelly v. Marx, which dispensed with the second-look approach used by the Appeals Court in Shapiro v. Grinspoon.²²Gary L. Monserud, The Demise of the Second Look Rule, The Law of Liquidated Damages in Massachusetts (2013). Massachusetts and other states using the single-look approach exist in contrast to those jurisdictions, like Texas, which have adopted the second-look approach and which consider actual harm to be considered as a factor in determining whether a liquidated damages clause operates as a penalty.²³Atrium Med. Ctr., LP v. Hous. Red C LLC, 595 S.W.3d 188 (Tex. 2020).

• 1
  Cummings Properties, LLC v. Hines, 492 Mass. 867 (2023).
• 2
  See, e.g., Lloyd v. Niceta, 255 Md.App. 663 (2022).
• 3
  NPS, LLC v. Minihane, 451 Mass. 417, 420 (2008), quoting TAL Fin. Corp. v. CSC Consulting, Inc. 446 Mass. 422, 431 (2006).
• 4
  See, e.g., Watson v. Ingram, 124 Wash.2d 845, 852-853 (1994).
• 5
  Id.
• 6
  Cummings Properties, 492 Mass. at 869-870.
• 7
  NPS, 451 Mass. at 423.
• 8
  492 Mass. at 869.
• 9
  Id.
• 10
  Id. at 868-879.
• 11
  Id. at 869.
• 12
  Id.
• 13
  Id.
• 14
  Id.
• 15
  Id.
• 16
  Id. at 873, 875.
• 17
  Id. at 870.
• 18
  Id.
• 19
  Id. at 871.
• 20
  Id. at 871-872.
• 21
  Id. at 872.
• 22
  Gary L. Monserud, The Demise of the Second Look Rule, The Law of Liquidated Damages in Massachusetts (2013).
• 23
  Atrium Med. Ctr., LP v. Hous. Red C LLC, 595 S.W.3d 188 (Tex. 2020).