Tuesday, March 11, 2014

Attorneys’ Fees, Property Managers, Landlords and Tenants

The American rule for attorneys’ fees is that each party bears its own attorneys’ fees and costs unless otherwise specified by contract or statute.  When a contract or statute specifies that the prevailing party is entitled to their reasonable attorneys’ fees and costs, assuming the matter is litigated to conclusion by a court or a jury, the prevailing party can then make a motion for their attorneys’ fees and costs (Motion for Attorneys’ Fees).  The motion is then taxed (Motion to Tax Costs), or opposed, by the opposing party by paperwork, a declaration, and exhibits.  The moving (winning or prevailing) party will then provide a reply brief to the judge addressing the issues raised in the opposition papers (Reply to Motion to Tax Costs).  The judge who presided over the matter will rule on the Motion for Attorneys’ Fees and grant an award of fees and costs.  This process is rather lengthy and costly; the fees of which to produce the motion paperwork are also calculated and included for the prevailing party.  How this applies in a landlord tenant situation is simple; a lease or rental agreement between and landlord and a tenant typically has a clause which allows recovery of attorneys’ fees for the prevailing party if a dispute arises under the lease or rental agreement.

Typical Contract Attorneys’ Fees Clause
After careful review landlords, property managers, and owners should have attorneys’ fees clauses in their leases or rental agreements because it is usually the tenant, lessee, or renter who is in breach of the terms of their agreements, not the landlords, property managers, or owners.  Thus, in order to have leverage and a motivating hammer over tenants, lessees and renters these clauses are important to enforce bad tenant behavior.  The below italicized language is a typical attorneys’ fees clause:
In any legal action, lawsuit, or arbitration brought by either party to enforce the terms of this lease/rental agreement which arises out of the property, whether based in tort or contract, the prevailing party is entitled to their reasonable attorneys’ fees and costs upon motion in front of a competent court, judge or arbitrator.

Why Attorneys’ Fees Clauses Are Important
While Landlords, property managers, and owners are more likely to prevail and win an award against a defiant tenant the awards are not always collectible.  However, an award against a landlord, property manager or owner is more likely than not collectible because they have more resources and assets.  Because of this economic imbalance some landlords, property managers and owners choose not to have these clauses as it is motivation to the tenant to sue the more substantial rival.  The economic reality of these clauses typically weighs against a tenant, but in those instances where the landlord has breached it can be a powerful weapon for the tenant.

Attorneys’ Fees Clauses are Reciprocal and Apply to Both Parties to a Contract
Some inexperienced landlords have even drafted one-way attorneys’ fees clauses which attempt to only allow for a landlord recovery.  In California these type clauses are actually reciprocal and work against and for both parties to a lease or contract.  California Civil Code Section 1717 makes any one-sided attorneys’ fees clause reciprocal.

Know Your Contract Clauses and What They Mean
It is important to know and understand what clauses are in your property management agreement, your leases, and your vendor contracts.  Attorneys’ fees clauses are extremely important components of contracts and they are the first clauses plaintiff’s attorneys look for when evaluating a case against a landlord, owner, or property manager.  If you drafted your agreements on your own you should have an experienced real estate attorney review them for clarity, legality, and items which may affect how you do business.  The amount of time and money spent for this little exercise is sometimes worth its weight in gold.