§ 10504 Lease Damage Liquidation Rules

This law allows a lease to set a fixed amount of money to cover damages if someone breaks the lease, but only if it follows specific rules, and it also explains how much the lessee can get back if the lessor ends the lease early.

Key Takeaways

•Liquidated damage clauses are allowed only if they meet the requirements of Section 1671 of the Civil Code.
•If a lease’s damage clause is invalid, the lessee can get back payments that exceed the allowed amount, up to a set limit.
•The refund limit is either the valid damage amount or, without a valid clause, 20% of the remaining rent (or $500 for consumer leases).
•The lessor can offset any damages they can recover or benefits the lessee received when paying restitution.

Example

A person rents a car for a year. The lease says they must pay $2,000 if they return the car late, which is meant to be a pre‑set damage amount.

If that $2,000 amount is not allowed under the law, the lessee can be refunded any extra money they paid that goes beyond the allowed damage amount, up to either the amount set by the lease’s damage clause or, if there is no valid clause, up to 20% of the remaining rent (or $500 for a consumer lease).

(a) Damages payable by either party for default, or any other act or omission, including indemnity for loss or diminution of anticipated tax benefits or loss or damage to the lessor’s residual interest, may be liquidated in the lease agreement subject to and in compliance with Section 1671 of the Civil Code. (b) If the lease agreement provides for liquidation of damages, and such provision does not comply with subdivision (a), remedy may be had as provided in this division. (c) If the lessor justifiably withholds or stops delivery of goods because of the lessee’s default or insolvency (Section 10525 or 10526), the lessee is entitled to restitution of any amount by which the sum of his or her payments exceeds: (1) The amount to which the lessor is entitled by virtue of terms liquidating the lessor’s damages in accordance with subdivision (a); or (2) In the absence of those terms, 20 percent of the then present value of the total rent the lessee was obligated to pay for the balance of the lease term, or, in the case of a consumer lease, the lesser of such amount or five hundred dollars ($500). (d) A lessee’s right to restitution under subdivision (c) is subject to offset to the extent the lessor establishes: (1) A right to recover damages under the provisions of this division other than subdivision (a); and (2) The amount or value of any benefits received by the lessee directly or indirectly by reason of the lease contract. (Amended by Stats. 1991, Ch. 111, Sec. 42. Effective July 15, 1991.)

Key Takeaways

•Liquidated damage clauses are allowed only if they meet the requirements of Section 1671 of the Civil Code.
•If a lease’s damage clause is invalid, the lessee can get back payments that exceed the allowed amount, up to a set limit.
•The refund limit is either the valid damage amount or, without a valid clause, 20% of the remaining rent (or $500 for consumer leases).
•The lessor can offset any damages they can recover or benefits the lessee received when paying restitution.

Example

A person rents a car for a year. The lease says they must pay $2,000 if they return the car late, which is meant to be a pre‑set damage amount.

Key Takeaways

Example

Key Terms

References

§ 10504 Lease Damage Liquidation Rules

Key Takeaways

Example

Key Terms

References

Key Takeaways

Example

Key Terms

Related Statutes

References

Key Takeaways

Example

Key Terms

Related Statutes

References