Enforceability Status
New Jersey applies heightened scrutiny to liquidated damages provisions in residential contracts. Per-diem closing penalties may face challenges under New Jersey's strong Consumer Fraud Act and the state's attorney review process for residential real estate contracts. The three-day attorney review period provides buyers an opportunity to negotiate or eliminate penalty provisions.
Legal Analysis
New Jersey courts evaluate per-diem closing penalties under the state's liquidated damages framework. A daily charge is enforceable if the amount was a reasonable pre-estimate of anticipated damages and actual damages would be difficult to calculate. However, New Jersey courts have shown willingness to scrutinize penalty provisions closely in consumer residential contexts.
New Jersey's unique attorney review process for residential real estate contracts (established by bar association guidelines) provides buyers with a three-business-day period to have an attorney review and potentially modify the contract after signing. This creates a built-in opportunity to negotiate or eliminate per-diem penalty provisions that may not exist in other states.
The New Jersey Consumer Fraud Act (N.J. Stat. Section 56:8-2) is one of the strongest consumer protection statutes in the country. It prohibits unconscionable commercial practices and deception in connection with the sale of merchandise. The Act provides for treble damages and attorney's fees, creating significant liability risk for builders who impose undisclosed or excessive penalties.
New Jersey does not have specific legislation governing closing penalties in residential construction. However, the combination of the attorney review process, the strong Consumer Fraud Act, and the state's consumer-protective legal tradition creates meaningful uncertainty for aggressive per-diem provisions.
Relevant New Jersey Law
Prohibits unconscionable commercial practices and deception in consumer sales. Provides for treble damages and attorney's fees. Applicable to undisclosed or excessive closing penalties.
Provides buyers with a three-business-day attorney review period after contract execution. Allows modification or elimination of penalty provisions through attorney negotiation.
New Jersey courts require that liquidated damages be a reasonable forecast of just compensation and that actual damages be difficult to ascertain.
Builders in New Jersey Using This Clause
What New Jersey Buyers Should Know
- Use the attorney review period to address penalty provisions. New Jersey's three-business-day attorney review period provides a built-in opportunity to negotiate or eliminate per-diem penalty clauses. Engage a New Jersey real estate attorney immediately after signing to review and modify these terms.
- Leverage the New Jersey Consumer Fraud Act. New Jersey's Consumer Fraud Act provides for treble damages and attorney's fees. If per-diem penalty terms were not clearly disclosed or the rate is excessive, this statute provides significant leverage for buyers.
- Request a cost breakdown justifying the per-diem rate. Ask the builder to document the specific daily costs underlying the penalty amount. In New Jersey's higher-cost market, builders may cite significant carrying costs, but the rate should be proportionate to actual expenses.
- Negotiate mutual delay provisions. Request reciprocal per-diem obligations for builder delays. New Jersey courts may view one-sided penalty structures unfavorably under the Consumer Fraud Act's unconscionability standard.