Should You Use an Attorney’s Fee Clause?

Most “standard” real estate contracts and leases contain provisions that state something to the effect, “If there is any dispute as to the agreement, the winning party is entitled to attorney’s fees”. Is this a good idea? Well, yes and no. First, understand that attorney’s fees are generally not awarded by the court to the winning party in a lawsuit. There must be either a specific statutory provision or a clause in the disputed agreement that calls for attorney’s fees. In addition, a court may award attorney’s fees where there is “bad faith” on the part of one of the litigants, but judges rarely enforce this rule.

If you have to sue another party to a lease or contract for $100, it hardly seems worth the effort if you have to pay your attorney $2,500 to file the lawsuit. In such cases, the opposing party may thumb his nose at you and say, “so sue me”. The court system is very unfair to the poor in this regard. However, if you are the potential defendant, it works in your favor if someone is thinking of suing you for some bogus reason and you know that they can’t afford an attorney. So, should you always insert an attorney’s fee clause in every contract or lease that you sign? Well, that depends on whether such a clause inures to your benefit. For example, if you are a landlord, chances are you will be suing your tenant for non-performance of the lease, not vice-versa. So, having the ability to get attorney’s fees if you win is to your benefit. Of course, this may be futile, since any judgment may be uncollectible, whether for $100 or $10,000. But, if you think you can collect a judgment, go ahead and put the clause in your lease.

Another example might be a purchase contract with a seller in foreclosure. Suppose you have an agreement to buy a property from a seller who is near insolvency. If he breaches the agreement, you can sue, but what will you get? On the other hand, if he can convince a court that YOU are in breach, you could lose and end up paying HIS attorney’s fees. Thus, you can see how an attorney’s fee clause may work against you. If you get into a dispute with a seller or buyer and they cannot afford an attorney, you reduce your risk if something goes bad. Remember, whether you are right or wrong in your actions involving a real estate deal, it’s what is proven in court that matters. Having plenty of trial experience, I can tell you that going to court is a gamble – sometimes you win, sometimes you lose, and truth and justice have little to do with it.

Finally, some agreements will state that if one party must enforce the agreement in court (e.g., the landlord in a lease), the landlord is entitled to lawyer fees. Many courts will apply the rules in reverse, even if the agreement doesn’t explicitly state. So, you cannot necessarily limit attorney’s fee if one party wins but not the other. As with any transaction, you could consult with an attorney before drafting any agreement you are uncertain of.