Is that fee actually enforceable?
Under long-standing contract law in both the US and the UK, a pre-set termination fee or "liquidated damages" clause is only enforceable if it's a genuine, reasonable attempt to cover the other party's real loss — not a penalty designed to punish or deter you from leaving. If a court finds the fee is out of all proportion to the real loss or interest at stake, it can rule the clause an unenforceable "penalty", and you may then owe only the actual provable loss, or nothing at all.
In the UK, the foundational case is Dunlop Pneumatic Tyre Co v New Garage & Motor Co [1915], which asked whether the sum was a genuine pre-estimate of loss made when the contract was signed. The UK Supreme Court refined that test in Cavendish Square Holding v Makdessi [2015]: the question today is whether the fee is out of all proportion to the other party's legitimate interest in the contract being performed. In the US, the principle is reflected in the Restatement (Second) of Contracts § 356 and applied by every state: a liquidated sum must be reasonable in light of the anticipated or actual loss and the difficulty of proving it, and an unreasonably large sum is an unenforceable penalty.
Two questions courts consistently look at:
- Was the loss genuinely hard to predict? At the time the contract was signed, was it really difficult to know exactly what leaving early would cost the other party?
- Is the fee roughly proportionate? Is it in the same ballpark as what the actual loss would realistically be — not many times larger?
This isn't a checklist you pass or fail — it's a pattern worth investigating. The doctrine varies in its exact application by state and jurisdiction, and it always depends on the specific facts of your contract, so this calculator flags something to look into; it doesn't replace legal advice. One more thing to check: the penalty rules generally apply to fees payable when you break a contract. A fee for using a right the contract gives you to end it early is often treated differently, so look at exactly how your contract words it.