Can Tenant in Default Avoid Attorney Fees by Suing Landlord First?
Situation: A landlord sends a default notice and is preparing to evict a spa tenant that owes nearly $53,000 in unpaid rent. But the tenant beats the landlord to the punch by filing its own lawsuit asking the court to enjoin the landlord from terminating the lease. The tenant’s complaint raises eight claims, all based on the theory that the agreement between the parties isn’t a lease but an oral partnership. The landlord prevails on all eight claims. There’s a valid lease and the tenant has violated it, the court rules. The landlord then asks the court to order the tenant to pay its attorney fees, citing this lease provision on attorney’s fees: “In the event that either party gives the other Notice of default hereunder and the parties agree to arbitrate or that litigation ensues, the prevailing party shall be entitled to an award of all costs, including all attorney’s fees actually incurred.”
Q: Must the tenant pay the landlord’s attorney fees?
A. Yes, because losers always pay winners’ attorney fees in landlord-tenant litigation.
B. No, because the tenant sued first.
C. Yes, because all conditions of the lease provision were met.
D. No, because the landlord didn’t give notice of default.
A: C. The lease provision applies, and the tenant is on the hook for the landlord’s attorney fees.
Explanation: This situation is based on a recent Maryland case that went in the tenant’s favor at first. Even though the landlord was clearly the prevailing party, the lower court read the lease provision narrowly, as applying only where one party sues the other after giving notice of default. And since the tenant actually initiated the litigation, the landlord couldn’t rely on the clause to collect attorney fees.
But the appeals court reversed and found that the lease provision did apply because all three conditions of the clause were met:
- The landlord did give the tenant notice of default;
- The tenant disputed the alleged default; and
- The landlord prevailed in litigating or arbitrating the dispute.
Why Wrong Answers Are Wrong:
A is wrong because it’s simply not true that the winning side in landlord-cases is automatically entitled to attorney fees—just the opposite. Under the so-called “American rule,” each side is responsible for its own litigation expenses. But parties to a lease are allowed to—and often do—contract out of the rule by agreeing that if the dispute goes to court (or arbitration), the loser must pay the winner’s legal fees—as in the situation above.
B is wrong. The court said that the argument that the clause didn’t apply because the tenant started the litigation was a “strained interpretation.” Under this theory, a tenant in default could never be held to its promise to pay attorney’s fees as long as it was first to the courthouse. The tenant provided no support for its “proposition that fee-shifting provisions in lease agreements are only triggered when the non-defaulting party files suit first,” the court concluded.
D is wrong because the landlord did provide the tenant with notice of default before the lawsuit began. The tenant then contested being in default by bringing the lawsuit. Last but not least, the landlord won the resulting litigation. Result: All three lease provision triggers occurred, and the tenant had to pay attorney fees.
- Columbia Ass’n v. Still Point Wellness Ctrs.: LLC, 2019 Md. App. LEXIS 773