GETTING THE MOST OF THE
ATTORNEYS FEE CLAUSE
© Copyright 2000-2011 Landlord.com
The typical form rental
agreement includes a clause which provides for an award of attorney fees
to the prevailing party in a proceeding to enforce the agreement. Some
are drafted in such a way as to try to make recovery available only to
the landlord, although this never works anymore, as courts construe such
clauses to be reciprocal.
Because most states still leave the issue
of attorney fee recovery to the agreement of the parties, the argument
for the inclusion of such a clause, from the landlordís point of view,
is that without its inclusion, the landlord will be out the money he
must pay his lawyer to effect an eviction. There are several reasons to
question this logic.
The attorney fee clause almost always
arises in a meaningful way in the eviction process. Practically all
evictions are for non-payment of rent. Non-payment of rent arises when
the tenant has no money. If the tenant has no money, how are the
attorney fees to be paid to the landlord? It is only in a tiny
percentage of cases that the full amount of rent due, i.e., the
principal amount of the judgment, is collected. There is little use in
tacking on an additional uncollectable amount. Even in those rare cases
in which an eviction takes place for reasons other than non-payment, it
is doubtful that the tenant will have sufficient non-exempt assets to
satisfy a judgment for attorney fees in addition to costs and expenses
for holding over after termination of tenancy. A tenant is a tenant
because he lacks substantial assets, making bankruptcy always an
attractive alternative to payment of the landlordís judgment after the
catastrophe of eviction. Even if an attorney fee award is forthcoming to
the landlord, most courts tacitly place a limit on the amount, and are
reluctant to award the full cost of the eviction against the tenant,
viewing it as piling on.
Once the tenant has received his summons
and complaint, or equivalent pleading in your state, he will seek the
counsel of a housing clinic or one of the numerous attorneys who
represent tenants in eviction proceedings. The first thing this attorney
will look for is the attorney fee clause. If he finds it, his strategy
is simple, because courts are by no means so reticent to award the full
value of attorney fees to the tenant, figuring, as they do, that the
landlord can afford it.
Although eviction is a very powerful tool
which works largely to the landlordís benefit, it is typically a
complicated procedure, which must be followed very precisely at each
step of the way. There are defenses which can be interposed at each step
of the proceeding which, even if they are unlikely to work, do not
amount to frivolous actions which will get the tenantís attorney
fined. But they do increase the landlordís expense.
In a few cases, the tenantís attorney
will create enough chaos to defeat the attempted eviction, which means
that he will be awarded his fees for doing all this, and the landlord
will pay it, because he has assets (such as the building) which can be
sold to satisfy the award. Such awards are by no means nominal, as it
does not take much to run up a fee of $5000 or more at $200 per hour
(generally considered to be in line with professional legal services of
this type in metropolitan areas nowadays). In most cases, the tenantís
attorney will not win, but even so, the inflation of the cost of the
eviction will often force a beneficial settlement, such as a buyout,
which will also result in cash flowing to the tenantís attorney.
Furthermore, the operation of the
attorney fee clause is not limited to evictions. It is operable in any
litigation which arises out of the contract. Tenant rights activists are
much more prone to commence litigation on issues such as repairs,
overall safety of the neighborhood, and so on, if the attorney fee
clause is present.
There is little reason to have a
lightning rod for lawyers in your rental agreement. The writer recalls
an incident in San Francisco some years ago. He was accosted by a member
of the tenant bar who was furious because a prospective client came to
him with a rental agreement authored by the writer, and had to refuse
representation because there was no attorney fee clause. The tenant
attorney considered this a cheap gimmick to deter attorney
representation. I smiled to myself.
Analyze your own history. Do you have a
track record of actually collecting your attorney fees from delinquent
tenants? Does it constitute more than a de minimus amount? If so, leave
the attorney fee clause where it is. However, if you cannot point to a
record of actual recovery, or your property is located where there is an
active tenant bar, then it may be the better part of wisdom to simply
leave that clause out.
It may be possible to leave the attorney
fee clause in but limit liability. Since the landlord nearly always
resorts to that clause in evictions, and evictions are typically
inexpensive in attorney fees, insert a clause that reads something like
"In any proceeding to enforce the
terms hereof, the prevailing party shall be entitled to recovery of
an attorney fee, in addition to other costs of suit. In no event
shall any attorney fee recovery hereunder exceed $500 regardless of
the amount actually expended by the prevailing party."
Check with your attorney on the
enforceability of such a provision in your state.