Is Your Tenant Required to Pay Your Attorney’s Fees?

Before assuming that your tenant is responsible for paying a share of your attorney’s fees incurred because you pursued legal action that benefitted all of the tenants at your center or building, check your lease. A recent case demonstrates once again that lease terms often dominate when there is a dispute between an owner and tenant.

There, a supermarket tenant signed a 25-year lease with the owner of a shopping center. Under the lease, the tenant was to pay base rent plus additional rent, which included items like its pro rata share of taxes for the center. Like some of the other tenants in the center, the tenant had an audit right that it could exercise if it wanted to contest its share of the taxes. Another tenant in the center contested the amount of taxes for the center. Ultimately, the owner obtained a reduction in taxes for the center overall and reimbursed its tenants the amount of taxes they had overpaid as part of additional rent. However, the tenant later discovered that the owner had charged it (as part of its additional rent) its pro-rata share of attorney’s fees that the owner had incurred in getting the reduction for the center’s taxes.

The tenant continued to pay rent, minus the amount of the attorney’s fees. It argued that it wasn’t responsible for those fees. The owner sued the tenant for back rent. The court ruled in favor of the tenant, and the owner appealed. The New Jersey Supreme Court upheld the decision in favor of the tenant.

On appeal, the tenant maintained that it had no lease obligation to pay these attorney's fees as additional rent. The court agreed. The owner argued that the tenant’s lease obligated the tenant to pay its pro rata share of attorney's fees to the owner for obtaining the property tax reduction. The owner stated that all those tenants at the center that “enjoyed a common benefit should be obligated to pay their fair share of the costs.” Thus, according to the owner, it was entitled to reimbursement for its successful efforts at reducing the taxes, whether or not the lease specifically provided for it.

The court determined that the lease provided for rent and additional rent, and neither included the owner’s attorney's fees. The owner’s “vague claims of equity do not trump the express terms of the contract,” concluded the court [Developers v. Wegmans Food Mkts., November 2013].

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