Leases Archives - Adishian Law

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:

Attorney’s Fees do NOT Count Towards the Jurisdictional Limit in Limited Jurisdiction Cases In California.

This article discusses attorney’s fees in one of the rare cases where we would, and have, represented a Plaintiff in a limited jurisdiction case.

As every lawyer knows, and most non-lawyers, the California Superior State Court system is divided largely into three level based on the “amount in controversy.” Amounts in controversy totaling $10,000 are directed to Small Claims Court, where the parties represent themselves without attorneys. Amounts in controversy greater than $25,000 are directed to the Superior Courts of “Unlimited Jurisdiction.” Amounts in controversy GREATER than $10,000 but less than $25,000 are directed to Superior Courts of “Limited Jurisdiction.”

In Unlimited Jurisdiction, there is no cap on jurisdiction, so there is no theoretical cap on attorney’s fees submitted or awarded provided there is a legal basis for the attorney’s fees, which are adequately supported and approved by the Court. That would seem obvious.

Less obvious though, is what happens to attorney’s fees in limited jurisdiction. For example: Plaintiff has a $10,000 breach of contract claim, and the contract has an attorneys’ fee provision. Defendant may believe that his worst outcome in this case is a $25,000 judgment against him plus his own attorneys’ fees (i.e. $10,000 plus $15,000 in plaintiff’s attorney’s fees, thereby totaling the jurisdictional limit of $25,000). Defendant would be wrong, and it could be an expensive lesson.

California’s Code of Civil Procedure Section 85(a) provides that: “The amount in controversy does not exceed twenty-five thousand dollars ($25,000). As used in this section, “amount in controversy” means the the amount of the demand, or the recovery sought, or the value of the property, or the amount of the lien, that is in controversy in the action, exclusive of attorneys’ fees, interest, and costs.

We’ve seen this arise in the context of commercial security deposits, where commercial leases almost always have attorney’s fee provisions.

The lesson of course is to not only do the right thing, but also in assessing your cost-benefit of litigation, understand that on “either side” a $10,000 dispute in limited jurisdiction court, could result in a liability 5-20x the amount in controversy to the losing party if litigated through trial and attorneys fees are awarded.

About Adishian Law Group, P.C.

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

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.

buy viagra online without prescription canada

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: