A more thorough explanation:

A penalty clause is a part of a contract that imposes damages that are unreasonably high and represent a punishment for breach, rather than a reasonable forecast of damages for the harm that is caused by the breach. These clauses allow parties to agree to their respective damages liability if they later breach. However, courts do not enforce penalty clauses.

For example, if a landlord leases an apartment to a tenant for $1000 a month and the lease provides that if a tenant holds over, the tenant must pay $750 per day, then this would be considered a penalty clause and be invalid because the damages for holding over are excessive.

Another example could be a contract between a company and a vendor. The contract states that if the vendor is late in delivering the goods, they must pay the company $10,000 per day. This would also be considered a penalty clause and be invalid because the damages are excessive and do not represent a reasonable forecast of damages for the harm caused by the breach.

These examples illustrate how penalty clauses are unenforceable because they do not represent a reasonable forecast of damages for the harm caused by the breach. Instead, they are seen as a punishment for breaching the contract.