Thursday, November 17, 2016

Examining Your Lease - An Attorneys' Fee Clause May Be Key to Your Defense

Many tenants, upon finding a new rental residence, conduct a cursory review of the lease agreement and sign the agreement without really knowing what they have committed themselves to.  Having been a corporate business executive equipped with an MBA, I negotiated large-scale contracts with clients and vendors and understand that contract language is key to defining the parameters of a relationship.  

A good tenant’s attorney is, among other things, a good contract attorney for at the heart of the landlord-tenant relationship is the lease agreement.   If you find yourself in a dispute with your landlord, first look to the lease agreement and always keep a copy of the agreement in your paper files and/or stored in the “cloud.”  If you are served with an eviction proceeding, your lease agreement will be attached to the complaint as an Exhibit for review by the judge and jury.

I will be covering a series of blog articles about lease clauses in typical leases used in the Bay area.  As part of my legal services, I offer lease review before a tenant enters into a contractual agreement with a landlord and have been successful negotiating lease provisions with landlord and property management companies.  Tenants must take a proactive stance to entering into lease agreement since unexpected circumstances such as job loss or a roommate who stops paying her share of the rent can escalate into an eviction proceeding. 

ATTORNEYS’ FEES CLAUSE

If you find yourself faced with a lawsuit brought by your landlord against you, check your lease agreement to see if there is an attorneys’ fees clause. Tenants usually lack the financial resources to pay an attorney to represent them, but if there is an attorneys’ fees clause in your lease there may be incentive for an attorney to take your case. 

Below is an example of a lease clause from an actual lease agreement used by a large East Bay property owner:

“ATTORNEYS’ FEES: If any legal action or proceeding (including mediation and arbitration) is brought and arising out of the terms of this Agreement, EXCEPT any unlawful detainer, breach of contract, property damage or related action brought by Owner/Agent, each side will be responsible for their own attorney’s fees and other costs of mediation, arbitration and/or litigation. The attorney’s fees, court fees and any other costs related to any unlawful detainer, breach of contract, property damage or related action brought by Owner/Agent shall be paid by Resident.”

In the example above, you may believe that you will have to pay the landlord’s attorneys’ fees in addition to your own in an eviction proceeding and this is what you are supposed to think.  However, under Cal. Civ. Code section 1717(a), attorneys’ fees are reciprocal. That is, attorneys’ fees will be awarded to the prevailing party. The statute reads:

“In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs…”

Generally, to prevail, a tenant must win at trial. However, most cases settle before trial and, in a settlement, and the case is dismissed. Generally, then, there is no prevailing party. When there is a settlement, the tenant attorney can attempt to negotiate a payment of her fees during settlement negotiations. Most cases settle before trial, including eviction proceedings.

While the lease clause described above can be overturned by California law, many leases include a attorneys’ fees clause like the one detailed below:

“ATTORNEYS’ FEES: In any legal action or proceeding brought by either party to enforce the terms of this Agreement or relating to the Premises, whether based in contract or tort, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and expenses in connection with this action.”

A newer trend adds a cap to attorneys’ fees and includes a revision to the clause above as follows:

“ATTORNEYS’ FEES: In any legal action or proceeding brought by either party to enforce the terms of this Agreement or relating to the Premises, whether based in contract or tort, the prevailing party shall be entitled to reasonable attorneys’ fees (not to exceed $1,000), costs and expenses in connection with this action.”

In general, the courts will uphold the cap. What is a reasonable attorneys' fee is then determined by the court.

On the flip side, some landlord leases include the following clause:

“ATTORNEYS’ FEES: If any legal action or proceeding is brought by either party to enforce any part of this Agreement, each party shall be responsible for their own attorneys’ fees, court costs, and costs incurred.”

This lease clause reflects the American Rule in which each party to a lawsuit pays his or her own attorneys’ fees. Depending upon the basis of the lawsuit and the tenant’s affirmative defenses to the complaint, other California statutes or federal law may pay for the tenant’s attorneys’ fees. For example, if the tenant claims that the landlord’s eviction was retaliatory, Cal. Civ. Code section 1942.5 awards attorneys’ fees to the prevailing party.

Finally, some landlords exclude an attorneys’ fees clause from the lease altogether believing that the vigor of the tenant’s defense lawyer will be significantly diminished. Tenant's are usually limited in what they can pay an attorney.  Conversely, an attorney is more likely to recover fees from a property owner.

If you are about to enter into a new lease agreement, check the lease for an attorneys’ fees clause.  And, if you are already locked into a lease agreement, check your lease for an attorneys’ fees provision. This provision may be central to your legal defense should you find yourself on the short-end of an eviction proceeding.  

Landlord-tenant cases are usually highly charged; it's frightening to lose one's home. With escalating rents in the Bay area, more tenants are finding a Notice to Terminate Tenancy in their mail or posted on their door.  Finding affordable replacement housing is difficult, time-consuming, and may require much more time than the Landlord is willing to provide the tenant (usually 30 to 60 days.) You need all available ammunition to wage your defense should you exceed the notice period and are served with an eviction proceeding.

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