In Vernitron Corp. v. CF 48 Associates, 104 A.D.2d 409 (2d Dept. 1984), the appellate court was called upon to decide whether the liquidated damages provision in a commercial lease was enforceable.
The court stated that a contractual provision fixing damages in the event of a breach will be sustained if the amount of liquidated damages bears a reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation.
In determining whether the provision constitutes liquidated damages or a penalty, the lease must be interpreted as of the date of its execution. Any reasonable doubt as to whether a provision constitutes an unenforceable penalty or a legitimate liquidated damages clause should be resolved on the side of unenforceability.