In advising a tenant involved in a Housing Court proceeding, one of the most important considerations is attorney’s fees. It’s not only how much the tenant’s fees will be, but whether or not she is entitled to collect fees if she wins or, conversely, if she would have to pay the landlord’s fees if she loses. While, we’d all like to believe that the outcome of cases are based on the law and justice, in reality many cases are settled based on a party’s financial exposure. Whether a tenant would be liable for her landlord’s legal fees if she loses, or vice versa, could be a determinative factor in how, or whether, to proceed in a particular case. Thus, it is critical to be able to counsel a client on the risk of attorney’s fees.

In many cases, however, this has been difficult to do in recent years due to a string of contradictory cases issued by the appellate courts. Except for certain statutory claims such as rent overcharges, a party’s entitlement to legal fees is determined by the lease. Many residential leases have a clause requiring a tenant to pay the landlord’s fees in the event the tenant breaches the lease. Real Property Law §234 provides that wherever a lease has such a provision it is deemed reciprocal and the tenant is entitled to fees if the landlord sues but the tenant wins. The idea is to “level the playing field” between landlord and tenant and discourage frivolous cases by causing the landlord to consider the risk of having to pay the tenant’s fees. See Duell v Condon, 84 NY2d 773 (1995).

Several popular form residential leases have odd language that, read narrowly, seemingly entitled the landlord to recover only legal fees associated with re-renting an apartment if the lease were cancelled as opposed to fees directly incurred in litigation:

If this Lease is cancelled, or Landlord takes back the Apartment, the following takes place:

. . .

Any rent received by Landlord for the re-renting shall be used first to pay Landlord’s expenses and second to pay any amounts Tenant owes under this Lease. Landlord’s expenses include the costs of getting possession and re-renting the Apartment, including, but not only reasonable legal fees, brokers fees, cleaning and repairing costs, decorating costs and advertising costs.

This had become known as the “Bunny Realty” language, after the first appellate case to address legal fees under this provision. Bunny Realty Corp. v. Miller, 180 Ad2d 460 (1st Dep’t 1992). Over the past few years, the appellate courts had split on the construction of this peculiar language. The First Department, which covers Manhattan and the Bronx, said the language did not trigger a tenant’s right to fees under RPL §234. Oxford Towers Co. v. Wagner, LLC, 58 AD3d 422 (1st Dep’t 2009). The Second Department, which covers Brooklyn and Queens, went the opposite way. Cassamento v. Juaregui, 88 AD3d 235 (2d Dep’t 2001). There were also a series of lower court opinions in which the judges contorted themselves into the legal equivalent of a pretzel to apply these conflicting decisions to the facts of specific cases. Given the confusing – and confused – legal landscape, it was difficult to provide clients with the Bunny Realty a reliable assessment of their ability to collect, or obligation to pay, legal fees.

In Graham Court Owner’s Corp. v. Taylor, 2015 NY Slip Op 01482 (2015), the Court of Appeals resolved the conflict and concluded that the Bunny Realty language does trigger a tenant’s entitlement to legal fees. Of course, the flip side of this holding is that landlords are now clearly entitled to fees if they prevail in a Housing Court case against a tenant with Bunny Realty language. Nevertheless, it is now possible to counsel clients with greater certainty as to the financial benefits – and risks – of pursuing litigation.

 

February 26, 2015