A penalty clause is a clause within a contract that seeks to make the counterparty responsible for paying a large sum of money if they breach the contract. This Property Management Agreement template lets you easily define the property manager's responsibilities.Create, sign, and store here on Contractbook. A contract that provides the same liquidated damages for any breach is "unreasonable and a violation of the principle of just compensation." A penalty clause is a provision within a contract stating that if one party breaches it, they must pay financial compensation to the other. In accordance with FAR Part 52.204-7(b)(1) Contractors must be registered in the System for Award Management.