Attorney Fees for Unpaid Rent: Who Pays the Price?

In these difficult economic times, landlords are finding that tenants are defaulting on leases and failing to pay rent in record numbers.  Landlords trying to recover delinquent rental payments and obtain control over the leased premises are finding themselves in a Catch-22.  Without regular rental payments, landlords may not be able to afford legal counsel to file the legal actions necessary to recover the overdue payments and/or recover possession of the leased premises.  While good news is hard to come by these days, a recent Pennsylvania Superior Court decision may make it economically feasible for landlords to file suit against defaulting tenants by awarding attorney’s fees to a successful landlord.

In Bayne v. Smith, the landlord and tenant entered into a simple, two-page, written, month-to-month residential lease.  The lease included a paragraph permitting the prevailing party in a suit for the recovery of rent to be awarded attorney’s fees.  When the tenant caused damage to the leased premises and failed to pay rent, the he landlord filed suit and was successful before the Magisterial District Justice.  The tenant filed an appeal with the Court of Common Pleas.  After a trial, the trial court found in favor of the landlord and entered judgment for the damages and the rent, but the court denied the landlord’s request for attorney’s fees despite the clear language of the lease.  The landlord appealed the decision to the Superior Court.

Generally, in Pennsylvania a party cannot recover its attorney’s fee except under certain, limited circumstances.  The Landlord and Tenant Act of 1951 does not provide for the recovery of attorney’s fee by either the landlord or the tenant.  Therefore, in landlord/tenant actions, a landlord can only be awarded its attorney’s fees if the written lease contains a provision permitting the recovery of such fees.

The trial court in the Bayne v. Smith case focused its attention on the issue of whether the lease in question was an adhesion contract, which is a “standard form contract prepared by one party, to be signed by the party in a weaker position, who has little choice about the terms.”  The trial court decided that the tenant had no other choice but to sign the lease because the landlord would not agree to the lease without the provision for attorney’s fees.  Therefore, the trial court did not enforce the contractual provision and award the landlord its attorney’s fees.

The Superior Court reversed the decision of the trial court.  The Superior Court held that the tenant had the burden of proof to establish that the lease was an adhesion contract.  In this case, although the tenant was able to show it lacked a meaningful choice about whether to accept the provision, the tenant was unable to prove that the lease clause unreasonably favored the landlord over the tenant.  The Superior Court held that the attorney’s fees clause was a simple fee shifting provision that did not unreasonably favor the landlord over the tenant because the clause permitted the “prevailing party” to obtain attorney’s fees, and the prevailing party could be the landlord or the tenant.

Landlords should review their commercial and residential leases with legal counsel to ascertain if the leases comply with the Bayne v. Smith case.  While there is no guarantee that a court will award attorney’s fees, lease provisions which are neutral in their application and intended as indemnifications for attorney’s fees will stand a greater chance of being recognized and enforced by the courts.  A landlord can then concentrate on collecting the judgment and attorney’s fees from tenants, a topic we will address in future articles.

If you would like for an attorney to review your lease, please do not hesitate to contact Maiello Brungo & Maiello, LLP and speak to one of our attorneys. Jennifer L. Cerce is an attorney with Maiello, Brungo & Maiello, LLP practicing in real estate taxation, business and general civil litigation.  As an integral part of the MB&M Business Law Team, she handles numerous business matters including trademark and copyright establishment.