Attorneys’ Fees Provisions: Not A Blank Check To Overreach

In the American legal system, attorneys' fees and costs are not recoverable as damages unless expressly authorized by statute. Legal fees are simply a cost of doing business unless the parties to a contract agree otherwise.

Attorneys' fee provisions come in all shapes and sizes. Some provisions are reciprocal and permit a non-breaching party to recover its fees and costs from the party in breach. Others are one-sided and authorize the recovery of fees by only one of the contracting parties. For example, a commercial lease may permit the landlord — but not the tenant — to recover fees if it prevails in a lease dispute. And a contract for the sale of goods may permit the seller to recover fees and costs incurred in a successful collection action.

In the attorneys' fees provision of a typical commercial contract, the party seeking fees must actually have prevailed in the underlying litigation. This sounds simple. However, what happens when A prevails in litigation against B but A previously rejected a settlement offer from B that was the same (or better) than what A actually recovered?

Consider the following scenario: A commercial tenant has some duty to maintain a parking facility under a lease with a 25-year term. The lease includes the following non-reciprocal provision concerning attorneys' fees:

Tenant agrees to pay any and all damages, costs and expenses which landlord may suffer or incur by reason of failure on tenant's part to comply with any of the terms, conditions or covenants of the lease.

At the outset of the lease, the garage has visible spalling and deterioration to the concrete reinforced rebar caused by chloride contamination. Halfway into the lease, the tenant retains an engineer to survey the garage and offer suggestions on repairs. The engineering firm suggests two solutions: (1) rebuild portions of the garage in order to arrest the corrosion over the long term; or (2) repair the portions of the garage that have rusted rebar, delaminated concrete and spalling.

Soon after the tenant receives the engineering report, it offers to structurally rebuild portions of the garage at its expense in exchange for an extension of the lease. The landlord rejects the proposal out of hand and refuses to negotiate. According to the landlord, the tenant is obligated to rebuild the garage without the benefit of a lease extension because the lease requires the operator to perform all repairs necessary to keep the garage in good order and...