One central principle of the American legal system is that each party generally pays his or her own legal fees. There are, however, exceptions to this rule. One exception exists in cases in which there is a “fee shifting” statute that requires a particular party to pay the other party’s legal fees. Another common exception exists in cases in which the parties had previously entered into a contract in which one party explicitly agreed to pay the other’s legal fees.
The provision requiring a tenant to pay a landlord’s legal fees is often found in residential real estate leases. However, it is generally agreed that, in a very competitive housing market, the bargaining position of the parties is somewhat unbalanced, and that residential leases are akin to “contracts of adhesion.” Other than the amount of rent paid by the tenant, there is very little room that a tenant has to actually negotiate. Consequently, the idea that a residential tenant is responsible for the landlord’s legal fees, while the landlord is not responsible for the tenant’s legal fees, seemed unfair to some New Jersey Lawmakers.
Starting this year, new legislation, marked as Senate Bill 2018, will seek to balance the equities by forcing landlord’s to pay the tenant’s legal expenses in some cases in which the landlord is not successful in the action. The caveat to this new rule is that it shall only apply in cases in which the landlord has reserved the same right for himself within the lease. Put simply, if the written lease does not require the tenant to pay the landlord’s legal expenses, the tenant also has no right to collect legal fees under the statute. Additionally, all residential leases that require a tenant to pay the landlord’s legal fees must contain an additional statement setting forth the tenant’s rights under the Statute.
The new law shall take effect immediately. Notwithstanding the legislative intent, there may be some difficulty in enforcing this Act. One of the unique aspects of Landlord Tenant Court is that it cannot award money Judgments. Rather, it can only award a Judgment for Possession. Therefore, the Landlord Tenant Court cannot actually compel a tenant to pay rent, legal fees, or other costs. The Landlord Tenant Court can only instruct that if the tenant does not pay the rent, plus any legal fees and costs that are due, that a Judgment for Possession would issue against the tenant. Similarly, in prior cases in which the tenant could legitimately argue that he or she was entitled to compensation for legal fees due to the wrongful conduct of the landlord, the Landlord Tenant Court could not award those fees.
In the matter of King Plaza v. Sanchez, the tenant was seeking sanctions against the landlord’s attorney due to multiple filings of what the tenant argued was essentially the same complaint. However, the Appellate Division had ruled that Landlord Tenant Court was without jurisdiction to award any sanctions, and that the tenant would need to file that claim under a separate docket number. Therefore, despite the tenant-friendly wording of S-2018, it seems that any fees to which the tenant is entitled must be pursued outside of Landlord Tenant Court.
Finally, as a cautionary note, landlords who pursue their actions should bear in mind that unlike actions filed on behalf of a landlord, which are generally handled in bulk at very affordable rates, attorneys who represent tenants are not counting on repeat business, and will very often charge the tenant exorbitant fees for the representation. Consequently, under the new Statute, it is clear that Landlords may be responsible for the reimbursement of those fees. Therefore, in cases in which the tenant is represented, it is sometimes prudent to dismiss a matter and refile if there is a potential defect in the case.