Attorney Fees in Commercial Leases

Attorney Fees in Commercial Leases

Boilerplate Provisions: What are They?

Many legal documents contain what is known in our profession as boilerplate provisions. Boilerplate provisions are typically found near the end of an agreement and can be very important. These provisions may determine who pays for attorney fees in commercial leases. They determine how disputes are resolved and how a court can enforce a contract. They may answer several important questions like: Does the lease contain all of the agreements of the parties? Where can a lawsuit be brought? Who has to be notified of a breach? Is there an opportunity to cure? And many more questions.

England vs. The U.S.

Within this boilerplate, there may be a provision for attorney fees. In England, the loser of a court case pays the winner’s legal fees. In the U.S., each party pays its own fees. This means that as a general rule, the American Rule, even if you defeat an unjust claim against you, you are still stuck with all of your legal bills spent defending yourself. It also means that if someone has a just claim for $100,000 but has to pay a lawyer $40,000 to collect that sum, they will only net 60% of what they were owed.

How are Verdicts Calculated?

In a personal injury case, verdicts awarded are imprecise because the jury or the Judge is attempting to place a value on something intangible such as emotional distress or pain and suffering.  In business cases, the amount is often (not always) certain: the amount of the unpaid contract, royalties, or lease payments. You can see how this might give someone breaching a lease or a contract an advantage. If you owe someone $100,000, you might offer to pay them $60,000, calculating the amount they will have to pay a lawyer to collect it from you. Additionally, the delay and the aggravation of litigation might be a reason to accept less than what you are owed.

To overcome these risks, many landlords include in their leases the right to collect attorney fees if they have to sue a tenant and win. So if a tenant owes $100,000 in back rent and the landlord has to pay a lawyer $40,000 to collect, the total judgment might be $140,000 plus interest.

Sometimes, the lease will contain a prevailing party attorney fee provision which is fairer. In this case, the tenant might win the case and then be entitled to attorney fees.  In Illinois, some cases state (erroneously in my view) that there can be only one winner. This means that if a landlord has sued for ten bogus reasons but prevails on one of them, they can still collect attorney fees and the tenant cannot, even if the tenant has won nine out of ten claims.

The Lawyers Should Consider The Impact of Provisions

The lawyers on both sides of commercial landlord-tenant disputes should consider the impact of these provisions. It affects the legal fee budget for the case, risk calculations, analysis of the Judge, positions you take during the discovery phase of the case, and the motions you file, just to name a few.

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If you have questions about attorney fees in commercial leases or think you may have been overcharged, please contact us.