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Penalty Clause: How to Give Your Settlement Agreement Some Punch

What happens when you enter into a settlement agreement and the other party refuses to comply with the terms? There are provisions you can put into your settlement agreement to help you enforce that settlement agreement in the future.

A settlement agreement is a contract. Contracts are enforceable. Most settlement agreements are solid documents. The parties can be forced to perform under the contractual agreement. The opposing party can’t back out of the settlement agreement, but occasionally the opposing party will refuse to follow certain terms.

What can I do to enforce my contract terms?

As with most things in life, it is best to be proactive in drafting your settlement agreement. At time, you can anticipate the possibility that the opposing party will not follow the terms of the agreement and build in safeguards. You can also add language to your settlement agreement that can help reduce the likelihood of the opposing party trying to breach your agreement.

And you can try to negotiate terms in your agreement to penalize the opposing party if they fail to perform. For example, if you are due a payment under the settlement agreement, you can try to negotiate a provision into the agreement that requires the opposing party to pay interest on a late settlement payment. Penalties incentivize the opposing party to follow the terms of the agreement or risk paying more.

With settlement agreements, it pays to consider the possibility that the opposing party will violate the terms and get creative with ways to prevent that from happening, if possible.