[NV] Is a liquidated damages clause enforceable if a contractor has not started work?

I understand that dealing with a contract dispute can be quite stressful. Can you please provide some details about the specific issues you're facing with the bathroom remodel contract?

Have you already attempted to resolve this dispute with the other party involved?

Is there anything else the Lawyer should know before I connect you? Rest assured they'll be able to help with your contract dispute.

Hello, and welcome to our service. My name is Daniel, and I've been a licensed attorney for over 22 years. I'm sorry you're dealing with this situation, and I'll do everything I can to help. To ensure I fully understand, you are considering not proceeding with the contractor's remodel after receiving the retailer's settlement funds, and you're concerned about any legal obligations or potential cancellation fees. Is that right?

Could you please let me know which state or jurisdiction this situation is taking place in? This will help me understand the legal context better.

Thanks for sharing that. Have you had any direct communication with the contractor regarding your intention to possibly cancel the contract? If so, what was discussed?

Please give me a moment to review that. Thank you for your patience.

I understand why this feels uncertain. You are holding a settlement tied to the prior bathroom dispute, and now you are trying to figure out whether a separate contractor agreement can still create financial exposure if you choose not to move forward. In general contract law, including principles applied in Nevada, a signed agreement can be binding even before work starts, but what matters here is what damages the contractor can legally claim if there is a breach (NV Rev Stat § 624.970). Nevada courts, like most jurisdictions, apply a "reasonable forecast of loss" standard drawn from general contract doctrine (reflected in the Restatement (Second) of Contracts § 356) to decide whether a liquidated damages clause is enforceable or is instead an unenforceable penalty. Liquidated damages clauses, like the 25% provision you described, are only enforceable if they represent a reasonable estimate of actual losses at the time the contract was made. If the amount functions more like a penalty than a genuine estimate of harm, courts often refuse to enforce it. Because no work has started, no schedule is set, and no deposit was paid, the real question becomes what actual loss the contractor could reasonably prove. That sets up a few practical paths forward.

Your first option is to proceed with the remodel under the contract as written. This eliminates any dispute risk and avoids triggering the liquidated damages clause entirely. Practically, this would mean confirming scheduling, preparing for the installation process, and ensuring all settlement funds are used as intended for the project. This option matters because it provides certainty and closes out any argument about breach. The next step would be to request a firm start date in writing, confirm the final scope of work matches the quote, and make sure all terms remain consistent with what was originally presented.

Another option may be to proactively contact the contractor and seek a mutual cancellation or written release before making any decision to walk away. This approach focuses on prevention rather than dispute. You would explain that circumstances have changed due to the settlement resolution and ask whether they will agree to cancel the contract without penalty given that no work has begun and no costs have been incurred. The goal here is to obtain written confirmation that both sides are released, which eliminates the risk of later enforcement attempts. The practical step would be to send a clear written message requesting cancellation and asking them to confirm in writing that no fees or damages will be owed.

A third option is to formally decline to proceed and be prepared to contest any claimed cancellation fee or liquidated damages demand if it is asserted. This option relies on the fact that no performance has begun, no materials have been ordered on your behalf to your knowledge, and no deposit was collected, which significantly weakens any claim of actual damages. If the contractor attempted to enforce the 25% clause, your position would be that it operates as an unenforceable penalty because it is not tied to measurable losses. The practical step here would be to send a written notice stating you are not moving forward and that you dispute any claimed fees not based on actual documented costs incurred.

The most effective starting point based on what you described is the second option, seeking a written mutual cancellation. It gives you the lowest risk outcome while preserving your flexibility, and it may resolve the issue entirely without escalation. If they refuse or attempt to assert the liquidated damages clause, your position is still relatively strong under general contract principles because no work has begun and damages would likely be difficult for them to justify. The key uncertainty is the exact wording of the contract's cancellation and notice provisions, which can affect timing and procedure.

Please let me know if these options make sense to you. I am happy to explain anything further. It's important to me that you fully understand your choices.

Yes, you've got it right. Here's a detailed breakdown to ensure everything is clear:

The 25% liquidated damages clause in your contract with the contractor isn't automatically enforceable just because it's there. For it to be enforceable, the contractor would need to demonstrate that this amount is a reasonable estimate of the actual damages they would incur due to a breach, rather than a penalty.

Since no work has started, no deposit was paid, and to your knowledge, no materials have been ordered, these factors significantly strengthen your position. If a dispute arises, the contractor would have a hard time proving actual damages, which makes enforcing the liquidated damages clause more challenging for them.

You could choose to move forward with the remodel under the current contract, which would avoid any potential disputes. The lowest-risk option if you decide not to proceed is to contact the contractor and seek a mutual cancellation or written release. This involves explaining your situation and asking them to agree to cancel the contract without any penalties. If you decide not to proceed and the contractor attempts to enforce the clause, you can contest it by arguing that it acts as a penalty rather than a reasonable estimate of damages.

If you choose to seek a mutual cancellation, send a clear written request to the contractor explaining your situation and asking for confirmation that no fees or damages will be owed. If they refuse or attempt to enforce the clause, be prepared to contest it based on the lack of incurred costs and the nature of the clause as a penalty.

Please let me know if you have further questions.

Based on what you've described, if the Settlement Agreement doesn't explicitly require you to use the funds for the remodel or provide proof of hiring the contractor, then you likely aren't contractually obligated to do so. Generally, unless a contract specifies how funds must be used, you have discretion over their use.

Your legal exposure would primarily come from the contractor's contract itself, not the settlement, as they appear to be separate agreements.

I want to make sure everything is clear and that you're comfortable with the information I've shared. Is there anything you'd like me to clarify or any other questions I can help with?

Based on the facts you've described, it doesn't sound like you've done anything that would constitute a breach of the contractor's contract. Simply accepting the settlement and seeking to understand your rights before making any decisions is a prudent approach. Since you haven't communicated any intention to cancel or hire another contractor, you are still within your rights to explore your options. Thank you so much for sharing your questions with me. I truly appreciate the opportunity to assist you and I am very glad you reached out.

Most welcome.