The general rule in New York is that each party to a lawsuit is responsible for his or her own legal fees. One exception to this is where the parties to a contract include a provision for attorney’s fees in their agreement. This clause typically states that in the event of a dispute, the losing party has to pay the winner’s attorney’s fees. However, in some cases, the provision may only grant one party the right to recover fees. As an example, a landlord has a right to recover its fees, but a tenant does not. These one-sided agreements are usually a sign of uneven bargaining power. Typically, these clauses are enforceable, but not in all cases. One such situation was highlighted in a recent case allowing co-op apartment owners to recover attorney’s fees despite the fact the owners’ proprietary lease only gave the co-op corporation that right.
One-sided attorney’s fees clauses are common in lease agreements (both proprietary leases for co-ops and in rental leases) because they usually involve parties with uneven bargain power. In fact, such a provision is included in the standard form lease agreement. However, the New York legislature has recognized the need to protect the “weaker” party against a one-sided attorney’s fees provision. It gave residential real estate tenants certain rights under New York Real Property Law (RPL) § 234. (Note, this provision does NOT apply to commercial leases.)
The RPL provides that where a lease contains a one-sided attorney’s fees clause, there is an automatic reciprocal right of a tenant to collect attorney’s fees in two situations. The tenant can recover if it prevails in an action commenced by the landlord or where the tenant sues and incurs attorney’s fees because of the landlord’s failure to perform its obligations under the lease. This provision applies not only to renters, but also in the context of co-op apartment owners and the co-op’s proprietary lease. With co-ops, the transfer of a unit actually consists of transferring a proprietary lease in the unit and shares of the cooperative corporation.
The application of this law to co-op apartment owners was demonstrated by a recent decision of the New York Appellate Division Second Department in Round Dune, Inc. v. Filkowski. In the case, the Plaintiff co-op corporation sued unit owners who allegedly transferred the units without prior board approval. In the suit, the co-op corporation also sought attorney’s fees under a provision in the proprietary lease.
The co-op apartment owners were successful in obtaining dismissal of the complaint and requested attorney’s fees under RPL 234 by cross-motion. The trial court denied the request because the owners did not assert a counterclaim against the co-op corporation and ask for attorney’s fees as part of their claim, which is the usual procedure for obtaining fees. However, the Appellate Court reversed, finding that fees should be awarded even without a counterclaim. The Court found that the failure to plead a counterclaim and ask for fees did not mislead or prejudice the co-op corporation and the cross motion was sufficient.
It is important to note that while the co-op apartment owners recovered fees without having to assert a counterclaim, the owners did request the fees in a cross-motion. In order to recover fees, a party must make the request in a counterclaim or cross-motion. Absent either of those, the co-op apartment owner would lose the right to fees.
If you are involved in a lawsuit or considering one involving a residential lease, contact one of our attorneys for a consultation.