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The LandLord Advocate April 2013

Lead Article:

How to gain leverage with an attorney’s fees clause.

A critical component of a successful lease is the attorney’s fees clause, which should entitle the landlord to collect its attorney’s fees, costs, and expenses from the tenant in any action required to enforce the lease or governing statutes. While often overlooked, this may be the most important and effective tool to deliver a development-wide message to your tenants about the importance of lease and statutory compliance.

With an attorney’s fees clause, the tenants not only face the cost and inconvenience of addressing any legal action brought by the landlord to remedy an issue (including filling out court pleadings, and/or going to a court hearing or trial), but can also anticipate the pleasure of paying the landlord’s legal expenses to conduct such action.

With the clause in place, tenants know upfront when they sign the lease that this exposure exists, and that compliance will help them avoid ever experiencing such charges – while noncompliance assures them the additional expense. Moreover, once the legal action begins, the tenant is incentivized to have it resolved quickly, because – in general – the more complicated the case or the more times court hearings are scheduled, the more legal fees the landlord incurs, hence the more charges that are passed down to the noncompliant tenant. Tenants understand this basic math, and change their behavior accordingly.

Although seemingly obvious, we have seen many leases that do not contain an attorney’s fees clause. The law in Connecticut is simple – landlords may recover attorney’s fees only if the lease contains such a clause. When reviewing your lease periodically (as we recommended in our August 2012 Quick Tip “The Power of a Simple Read”), this should be the first item on your checklist of clauses to locate in the lease, or – if there is not one – to add to the lease.

While some leases we have reviewed contain attorney lease clauses, we have also found that often the verbiage limits its power unnecessarily. For example, the most common limited clause requires the tenant to pay the “attorney’s fees when the landlord obtains a money (or damages) judgment for unpaid rent.” This clause is too restrictive for four reasons.

  • The clause does not capture legal costs or expenses other than attorney’s fees. Although other statutes may enable a landlord to recover its costs (as defined and limited by those statutes), legal expenses would simply not be recoverable.
  • It does not capture summary process (eviction) cases in its coverage, because a summary process case leads to a judgment for possession, not for money (or damages). In Connecticut, landlords can use a separate civil collection action or small claims case to obtain a money (or damages) judgment, but there is no reason under the law why landlords cannot recover their legal fees for summary process cases. Indeed, most landlords start with summary process in an effort to eliminate the underlying problem and keep the tenant (i.e. by using a reinstatement stipulated judgment to get the tenant to pay the back rent and pay on time and in full going forward). It makes good sense for landlords to have the attorney’s fees clause apply to the legal action that they are most likely to bring.
  • The clause requires the landlord to obtain a court judgment, which is not always necessary to obtain the lease or statutory compliance that the landlord is seeking from the tenant. For example, in the residential setting, a tenant may remedy the problem after the first or second legal step in a summary process action, and the landlord may choose not to proceed to court and a stipulated judgment or eviction. In those situations, the landlord has not obtained a judgment, and the attorney’s fees clause would not apply.
  • The clause is limited to a tenant’s failure to pay the rent, and ignores the large amount of other lease and statutory obligations that a tenant owes to its landlord. For example, in the commercial setting, a tenant that fails to maintain the premises under the lease faces no risk of having to pay the landlord’s legal expenses under such a clause. Quite simply, a lease violation regarding maintenance or repair has nothing to do with nonpayment of rent, and the clause does not apply. Without this incentive, the tenant may continue to ignore or delay its lease compliance, forcing the landlord to take more drastic (and expensive) legal steps to obtain the tenant’s compliance.

Contact your landlord attorney if you do not have an attorney’s fees clause in your lease, or if you are concerned that the clause you have may be unnecessarily restrictive.

Quick Tip:

State capital rumblings: Landlord/Tenant law.

There’s quite a bit of legislative activity in Hartford these days, and believe it or not, a fair share of it pertains to landlords and tenants. Just in case you haven’t been following the news, don’t have a current source for legislative information, or are not a member of the Connecticut Apartment Association, here’s a quick summary of the items being considered by your lawmakers this session that may ultimately affect you:

  • Prohibiting the use of electronic payment as an only rent-payment option
  • Comprehensive bed bug legislation
  • Sub-metered utilities and RUBS (Ratio Utility Billing Systems)
  • Proper handling of the evicted tenant’s possessions
  • Use and occupancy payments while summary process is pending

These are just a few of the bills that are being considered during the current legislative session that might impact how you operate in the future. Find a subject that hits home? Now is the time to get involved. If you are not already sharing your opinion, make sure your voice is heard or these laws will be considered without you. If you are not part of an organization that will sound your concerns for you, consider joining one as they often hire professional lobbyists to make sure their issues are properly presented to the legislators.

One of the most proactive ways to impact your future as a landlord is to get involved today in the shaping of laws that will impact you tomorrow. Hope to see you at the Capitol!

Quick Tip:

Don’t “waive” goodbye to your ability to enforce a tenant’s obligations.

Landlords often do not address every tenant violation of the lease or governing statutes, often for good reason and sometimes simply because of the pressing need to address other business priorities. However, landlords should ensure that when they do not pursue the tenant for a violation, that they have not “waived” goodbye to their ability to enforce that obligation in the future.

For example, rent due dates are a common problem area, such as when the landlord repeatedly allows the tenant to pay by the 15th (or the last day) of the month, when the lease says rent is due by the 1st and the statutory grace period gives the tenant only until the 10th of the month. If the landlord has a long pattern of recognizing, but not acting upon, such a lease violation, the tenant could later claim – and a court could hold – that the landlord’s business practice changed or altered the tenant’s lease obligation.

Therefore, in addition to the attorney’s fees clause discussed in this month’s lead article, landlords should also ensure that their lease contains a broad “no waiver” clause. Among other things, this clause should say that the landlord’s waiver (or failure to act) on any lease violation shall not waive in any way the landlord’s right to act against the tenant for any future lease violation, including one on the same subject, or create a business practice on which the tenant can rely. While this is usually a short clause, it is a very powerful and meaningful one.

Contact your landlord attorney if you do not have a “no waiver” clause in your lease, or if you are concerned that the clause you have may not be comprehensive and broad.

Quick Tip:

Smoking ban expands.

Let me start with a disclaimer… This action is not taking place in CT and is NOT CT law.

However, it is intriguing nonetheless and may be a sign of what’s “coming down the pike”…

The Springfield, MA Housing Authority has had such success with its one-year-old smoking ban that it has decided to expand it even further. Seems a year ago, the Authority ordered that its residents and their visitors not smoke inside agency buildings, including the residential units. Citing the change a triumph, and expecting even further success, the Authority has decided to expand that ban to cover the entirety of the agency’s property, including the great outdoors. The head of the agency is justifying the organization’s efforts by citing that they are trying to make its properties healthier work and living environments, all while improving social awareness on the health issues related to smoking.

This recent move is being brought to your attention because, as you know, what happens in our neighboring states often influences what happens here in CT. Additionally, trends across the country, including those within HUD, seem to be moving toward smoke-free, multi-family environments. Both good reasons to be prudent and keep abreast of the subject.

For those managers and developers looking to create smoke-free communities, there are a number of organizations, like the Springfield Housing Authority, who are blazing their way down this pioneering path. If you hope to follow suit, the first place you will need to start is in your rules and in your lease. Without the proper foundation, current situations in CT will make it nearly impossible to enforce a non-smoking ban. Even with the proper rules and lease language in place, the way things stand today, you can still anticipate a struggle. However, if you are interested in going down this path, you can find solace in knowing you won’t be the first organization moving in that direction.

Quick Tip:

How best to communicate ownership changes to the tenants.

In the lead topic of our February 2013 newsletter, we recommended that purchasers (or the property management company for the new owner) set aside a substantial block of time for an uninterrupted analysis of who (or what entity) now owns the new property, along with the importance of communicating that new name to existing tenants, vendors, prospective tenants, and the landlord lawyer. Since then, we have received a number of follow-up questions on the subject – especially on how best to pass the information on to tenants.

There are two key steps that landlords should follow when communicating about an ownership change to the tenants:

First, CONTENT – landlords and property managers have a duty to tell the tenants who (or what entity) now owns the property, who you are, and how they should interact with you. Usually, the most critical item of discussion revolves around the payment of rent. If the commercial or residential property that you purchased is subject to written leases, existing tenants have a contractual obligation to keep paying the landlord listed in the lease (the seller) until you tell them that the obligation has changed in the course of the real estate closing.

Remember, you do not get to change or alter lease terms simply because you are the new owner. The lease and/or the law must permit such a change, which requires a comprehensive evaluation of not only the lease, but also the necessary documents in the real estate closing.

Second, PROCESS – often, the leases contain a “notice” provision that describes how the landlord must communicate with the tenant. Landlords should find that clause and follow it to the letter.

Contact your landlord attorney if/when you are considering a property acquisition, or if you have recently acquired a new property, so that you can evaluate what you need to – and can – tell the tenants to do differently (CONTENT), and effectively communicate that information to them (PROCESS).

DISCLAIMER:

The reading of this newsletter does not form an attorney-client relationship. The contents of this newsletter are for informational purposes only and do not constitute legal advice. Nothing in this newsletter is intended to imply or predict the outcome of any legal matter that you may be considering or be involved in. The Landlord Law Firm makes no warranties of any kind regarding the information contained in this newsletter.