Landlord Can Collect Attorneys' Fees from Guarantors But Not Tenant

What Happened: After finding it liable for lease violations, a court ordered a restaurant tenant and its guarantors to pay damages to the shopping center landlord. It also held them jointly and severally liable for the nearly $40,000 in attorneys’ fees the landlord incurred in bringing the underlying lawsuit, based on language contained in the lease and guaranty agreements. The tenant and guarantors appealed the award of attorneys’ fees.

Ruling: The Iowa court reversed the attorneys’ fees award against the tenant but upheld the award against the guarantors.

Reasoning: The reason the outcomes were different was because the language purporting to shift responsibility for the landlord’s attorneys’ fees was different. The case against the tenant was based on an indemnification clause in the lease:

Tenant will indemnify, hold harmless and defend Landlord from and against, and Landlord will not be liable to Tenant on account of, any and all costs, expenses, liabilities, losses, damages, suits, actions, fines, penalties, demands or claims of any kind, including reasonable attorneys’ fees, asserted by or on behalf of any person, entity or governmental authority arising out of or in any way connected with (a) a failure by Tenant to perform any of the agreements, terms or conditions of this Lease required to be performed by Tenant; (b) a failure by Tenant to comply with any laws, statutes, ordinances, regulations or orders of any governmental authority; (c) any accident, death or personal injury, or damage to or loss or theft of property which occurs on or about the Premises or the Shopping Center, except as the same may be the result of the negligence or intentional misconduct of Landlord, its employees or agents; or (d) any risks associated with any so-called “dram shop” liability.

In breaking down the tenant’s liability, the court began by stating the general rule that parties to a contract can’t use an indemnity clause to shift responsibility for attorneys’ fees “unless the language of the clause shows an intent to clearly and unambiguously shift the fees.” The court concluded that the language of the indemnity clause failed the test because it didn’t “clearly and unambiguously indemnify against disputes between the parties as compared to disputes involving third parties.”

By contrast, the case for attorneys’ fees against the guarantors was based on the following language contained in the respective personal guaranty agreements:

In consideration of the execution of the Lease by Landlord, at Landlord's request, and on the faith of this Personal Guaranty, . . . the undersigned. . . does hereby unconditionally and personally guarantee unto Landlord, and its successors and assigns, the payment of the rent and the performance of all the covenants of the Tenants under the Lease and any exercised option period of the Lease; and the undersigned Guarantor shall pay all expenses, including attorney's fees, incurred in enforcing this Personal Guaranty; and the undersigned Guarantor hereby waives notice of any default under the Lease, and agree that his and their liability hereunder shall be joint and several, and shall not be released or affected by any extension of time for payment or by any forbearance or by any waiver or consent by the obligee or by any modifications of the said Lease.

Unlike in an indemnification provision, there was nothing in the plain language of the personal guaranties to suggest they were intended to regulate third-party interactions or anything other than the conduct of the landlord, tenant, and guarantors. The guaranty simply said that the guarantors would be responsible for the tenant’s compliance with the lease and obligated them to pay the attorneys’ fees the landlord incurred in enforcing the guaranty. Accordingly, the court concluded that the attorneys’ fees obligations of the guaranty were clear and enforceable.

• Burkle Co. LLC v. Copper Kitchen, LLC, 2024 Iowa App. LEXIS 75