Landlord-Tenant Law Archives

This article focuses on attorney’s fees clauses in real estate leases. The principles here could apply to any written contract. Often times, the negotiation of attorney’s fees and the implications of having these clause become the “Game Within The Game:”

In California, unless attorney’s fees are provided for by statute or contract, each party will absorb his/her/its litigation fees. This becomes a consideration in whether or not to pursue litigation, or settling a claim. To use a simple example, if it will cost a Plaintiff $50,000 of attorneys fees (plus time, etc. etc.) to recover $50,000, such that Plaintiff’s net recovery is zero, is it worth it? Probably not.

Attorney’s fees provision change this calculation by granting the winner his/her/its attorney’s fees on top of the recovery. For example, if it will cost you $50,000 of attorneys’ fees to recover $50,000, but there is a statutory or contractual provision for attorneys’ fees to the prevailing party, then suddenly the Plaintiff’s net recovery is $50,000. On the other side, the Defendant’s exposure is much higher, as Defendant is now possibly paying 2x the original amount at issue.

As a Landlord when you are drafting your leases, look carefully at the attorney’s fee provision. Residential landlords generally have more assets and more bargaining power than tenants. Commercial landlords, aside from situations involving large national tenants (i.e. Home Depot, Walgreens, etc.), also generally have more assets and more bargaining power than their tenants. Given this relative relationship, Landlord’s often mistakenly believe that having an attorney’s fee provision in a lease will be a deterrent to litigation. Often times it is just the opposite.

Attorneys representing Plaintiff tenants (particularly residential tenants) typically work on a contingency basis, with the backing of an attorney’s fee provision in the event that they prevail. This is generally the first inquiry that a contingency attorney will take in evaluating a plaintiff’s case.

Landlords often don’t consider these provisions, or if they do, they mistakenly believe that the tenant will fear the prospect of paying Landlord’s attorney’s\ fees and it will be an effective deterrent. In the majority of cases, where there is a significant disparity between the Landlord and Tenant in terms of assets, resources and bargaining power, it is not a deterrent. If you are Landlord with an open ended attorney’s fee provision in your leases, you are inviting Plaintiffs’ attorneys to take a “free shot” with a Plaintiff who may have a marginal case and “nothing to lose” financially.

Better practice in these situations is to include provisions that either (1) cause each party to bear the its own attorney’s fees and costs or (2) limit attorney’s fees to some reasonable amount of money. Where the parties are more evenly matched in terms of assets and bargaining power, then this provision may serve as more of a deterrent to baseless or highly speculative litigation.

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian:

We continuously receive inquiries from both Landlords and Tenants regarding termination of tenancies. This article applies to the renewal and termination of residential real property in California cities and municipalities that do NOT have local rent control ordinances (e.g. Santa Monica, Berkeley, San Francisco). However, even in these non-rent control jurisdicition, landlords must be careful with lease terminations.

Where there is a rental of a residential property for a term not specified by the parties, the general rule in California is 60 days notice. However, only 30 days notice is required in the following circumstances:

(A) If any tenant or resident has resided in the dwelling for less than one year, or
(B) If ALL of the following apply:

The dwelling or unit is alienable separate from the title to any other dwelling unit.
The owner has contracted to sell the dwelling or unit to a bona fide purchaser for value, and has established an escrow with a licensed escrow agent, as defined in Sections 17004 and 17200 of the Financial Code, or a licensed real estate broker, as defined in Section 10131 of the Business and Professions Code.
The purchaser is a natural person or persons.
The notice is given no more than 120 days after the escrow has been established.
Notice was not previously given to the tenant pursuant to this section.
The purchaser in good faith intends to reside in the property for at least one full year after the termination of the tenancy. Cal. Civ. Code § 1946.1 (West)

Any notices served under this Section, must meet the notice requirements of Section 1162 of the California Code of Civil Procedure.

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In the current recession, commercial landlord’s are just beginning to feel the pressure from tenants seeking rent concession or the outright elimination of their rent obligation. See Wall Street Journal, “Struggling Retailers Press Struggling Landlords on Rent”, January 2009. There is also a rapidly shrinking pool of high-quality “anchor” as major retail chains file bankruptcy seemingly one after the other. As a commercial property owner, what should you do to protect your interest?

Surrender or Termination or Both.

A lessee cannot effect a surrender and termination of a lease unilaterally. The landlord must accept the offer of termination for it to be in effect. Under California law, an abandonment of the premises by the tenant is merely an offer to surrender their lease. See Miller & Starr, 3rd. Ed., Vol 7, Sec. 19.

Upon receiving an offer of termination from a tenant, a commercial landlord must make an election of his remedy: (1) Ignore the offer to terminate, treat the lease as continuing and sue to recover rent as it becomes due provided that the lease permits the lessee to sublease or assign its interest; or (2) Accept the offer to terminate, and pursue remedies under CCC §1951.2.

How well companies and individuals managing real estate assets through an economic downturn is critical to long term success in real estate.

About Adishian Law Group, P.C.

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via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian:

The typical fact pattern arises when a tenant during the course of his tenancy adds various items to the leased premises. Do these items belong to the tenant or to the landlord? Can the tenant remove these items when the lease is terminated?

The first question is whether the item is a fixture. Second, assuming an item is a fixture, at issue is whether it qualifies as a trade fixture. The law for determining if an item is a fixture is codified in Cal. Civ. Code § 660. “A thing is deemed to be affixed to land when it is attached to it by roots . . . or imbedded in it . . . ; or permanently resting upon it as in the case of buildings . . .; or permanently attached to what is thus permanent, as by means of cement, plaster, nails, bolts, or screws . . . . “ However, in analyzing whether or not a given item is a fixture, California courts do not rely exclusively on the characterization set forth in § 660. Rather, the courts look a number of factors, most importantly intent.

Once property is characterized as a fixture it ceases to be personal property and becomes part of the landlord’s property: “When a person affixes his property to the land of another, without an agreement permitting him to remove it, the thing affixed, except as otherwise provided in this chapter, belongs to the owner of the land, unless . . . the [tenant] elects to exercise the right of removal provided for in Section 1013.5 of this chapter.”

Large commercial tenants can spend hundreds of thousands of dollars on their leased space on the expectation that they own such “improvements.” Similarly, landlords can often legitimately receive the ownership and long term benefits of a tenant’s capital investments without spending any money. The determination of whether an item is a fixture can have significant financial impact.

About Adishian Law Group, P.C.

For more information about this topic or to speak with Chris Adishian: