Suing Your Tenant for Damages – Can You Recover Attorney’s Fees?

It’s one of the larger mines in the minefield of renting out property as a landlord – what happens when the tenant breaches the lease? What happens when the tenant doesn’t pay? In and among the questions presented by such a scenario is whether a suit against the tenant would be cost-effective. The landlord’s decision may, in large part, depend on whether the landlord is entitled to recover its costs and attorney fees associated with prosecuting its claim against the tenant. And, in Kentucky, the landlord’s right to recover costs and attorney fees depends on the circumstances surrounding the tenant’s breach of the lease.

Kentucky has adopted the Uniform Residential Landlord and Tenant Act (KRS 383.500 to 383705)(hereinafter the “Act”), which governs transactions between those parties in jurisdictions where the Act has been adopted and enacted.[1] The discussion herein is limited to jurisdictions where the Act has been adopted. Pursuant to the Act, KRS 383.570 lists provisions that landlords are prohibited from including in lease agreements. Specifically, KRS 383.570(1)(c) prohibits provisions that require tenants to agree to pay the landlord’s attorney fees under any circumstances.

However, while lease agreements may not require the payment of attorney fees from the outset, the recovery of attorney fees and costs by the landlord is permitted under other parts of the Act. For instance, KRS 383.660(3) states that “If the tenant’s noncompliance is willful the landlord may recover actual damages and reasonable attorney’s fees.” However, it must be determined whether the tenant’s conduct is “willful” before any such recovery is permitted under the Act.

In Batson v. Clark, 980 S.W.2d 566 (Ky. App. 1998), the Kentucky Court of Appeals noted Kentucky’s general policy against awarding attorney’s fees as costs in the absence of a statute or contract provision specifically allowing for recovery. With regard to the award of attorney’s fees under KRS 383.660, the Kentucky Court of Appeals very clearly stated that it views the prohibitions in KRS 383.570 as a strong indicator of “public policy disfavoring a landlord’s recovery of attorney’s fees incurred in an action against a tenant.”[2] The Court determined the mere failure to pay rent, accompanied by requests for more time or promises to pay, did not rise to the level of “willful” as defined by the statute.[3] The Court found a strong presumption against the award of attorney fees and set a high bar with regard to declaring a tenant’s noncompliance with a lease “willful.”

Hispanic couple outside home for rentHowever, there are circumstances where attorney fees are recoverable. In Palladino v. Shropshire, 2013 WL 6730733 (Ky. App. 2013), the Kentucky Court of Appeals held that a tenant’s deliberate damaging of the premises and keeping a pet in contravention of the lease rose to the level of willfulness as envisioned by the statute and left an award of attorney’s fees intact.

Thus, while the burden is high in establishing the right to recover attorney fees and costs, it is not insurmountable. In most situations, landlords will not be entitled to recover attorney fees when seeking damages from tenants for the nonpayment of rent. However, the landlord may be entitled to its attorney fees and costs where there is deliberate damage to the premises by the tenant and for other willful violations of the lease. For more information on the remedies available to landlords under the Uniform Residential Landlord and Tenant Act, contact the attorneys at McBrayer.

BYatesBrendan Yates joined the Lexington office of the firm as an associate in 2002. Brendan is a member of the firm’s Litigation Department, where he focuses his practice on construction and real estate litigation, workers’ compensation defense litigation, insurance defense and commercial litigation. He has successfully defended his clients in state and federal courts, the Kentucky Court of Appeals, the Kentucky Supreme Court, and in administrative agency proceedings in Kentucky. He can be reached at byates@mmlk.com or (859) 231-8780, ext. 208.

This article is intended as a summary of state and federal law and does not constitute legal advice.

[1] See KRS 383.500. It is important to note that, if adopted, the provisions of the Act must be adopted in their entirety and without amendment.

[2] O’Rourke v. Lexington Real Estate Company L.L.C., 365 S.W.3d 584, 586 (Ky. App. 2011).

[3] Id.

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The Consequences of Walking Away: Breach of Contract in Commercial Real Estate

The temptation happens often: the deal is done, the ink is dry, the contract is finalized…then someone gets cold feet. Buyers don’t want to buy, sellers don’t want to sell, money gets tight, titles can’t be delivered, etc. What makes breach of commercial real estate contracts unique as opposed to most non-real estate contracts is that every single property is unique. No two properties can share the same physical location, but most also won’t share the same size, improvements, buildings, access, resources…the list is endless. It’s not as though the buyer can just buy the same property from another seller, and the seller who loses a buyer also loses expected capital. When one party breaches its duties in a commercial real estate contract, it’s important for the non-breaching party to understand what remedies are available. We’ll explore the most common remedies and what provisions should be in commercial real estate contracts to mitigate the effects of breach.

Specific PerformanceAngry Businessman Tearing Contract Paper

There are two main categories of remedies – legal remedies, which provide monetary remedies and equitable remedies, which do not. The main type of equitable remedy applicable in a real estate contract context is specific performance. Since each property is unique, the argument goes, the only way to make a party whole is to fulfill the terms of the contract. This is done by asking for specific performance, a court-ordered fulfillment of the terms of the contract. It is as simple as the name implies; the court orders the party in breach to perform a specific act: for example, the act of signing or delivering a deed. This remedy generally only applies as against a seller in breach, and this makes sense: there is exactly one property with these characteristics in existence in the known universe, so the buyer has a strong argument that he or she cannot be made whole by mere monetary damages. Courts are generally loathe to force a party to perform an action unless monetary damages are incapable of providing relief. Sellers really only receive money in the transaction, so money is an appropriate remedy.

Damages

Damages, on the other hand, are monetary remedies available to both the buyer and the seller. Actual damages for both parties are usually given as the difference between the value of the property and the agreed-upon purchase price. The seller opposing a buyer in breach will want to argue the purchase price was more than the value of the property, while the buyer opposing the seller in breach will argue the opposite. These damages are often highly dependent on the commercial real estate market at the time, giving one party an advantage. The buyer is also generally able to terminate the contract if the seller is in breach and recover any payments made. Other types of damages may be available to a buyer in a commercial real estate transaction – courts in other states have found lost profit damages for a seller’s breach of a commercial real estate purchase contract.

Contract Provisions

As seen above, buyers tend to have more remedies than sellers, so savvy sellers should include contract provisions that deter breach on the buyer’s part. One of those provisions provide for liquidated damages. Liquidated damages are a fixed sum of money available to a seller in the event of a buyer’s breach. As mentioned earlier, actual damages can be dependent on the market and other factors, so a contract clause awarding liquidated damages in the event of a breach gives a seller some firepower in holding a buyer to the deal.

One other contract provision to consider is the award of attorneys’ fees in case of breach. Both parties should watch the language of any attorneys’ fees provisions inserted into the contract, making sure that the clause includes the word “reasonable.” Otherwise, the other side could run up extensive attorneys’ fees that wind up being almost punitive.

For commercial real estate contract concerns and other issues involving contract breach, contact the attorneys at McBrayer.

J. MarkhamJoshua J. Markham is a member at McBrayer, McGinnis, Leslie & Kirkland, PLLC in the Lexington, KY office. Mr. Markham practices in virtually every aspect of real estate law, including title examination, title insurance, clearing title issues, deeds, settlement statements, preparation of loan documentation, contract negotiation and preparation, lease negotiation and preparation, and any and all other needs related to residential and commercial real estate matters. He can be reached at jmarkham@mmlk.com or (859) 231-8780, ext. 149.

This article is intended as a summary of federal and state law and does not constitute legal advice.