GETTING THE MOST OF THE ATTORNEY’S FEE CLAUSE

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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 landlord’s 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 landlord’s 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 landlord’s 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 tenant’s attorney fined. But they do increase the landlord’s expense.

In a few cases, the tenant’s 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 tenant’s 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 tenant’s 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 this:

"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.

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