The California Court of Appeal recently found that provisions in a residential lease that allow for attorneys’ fees may be recovered in the case of a declaratory relief and intentional interference with prospective economic advantage claim. Burien LLC v. James A. Wiley provides some insight on the recovery of attorney’s fees in accordance with rent control in Los Angeles. This case actually stems from the same case I discussed several months ago that involved raising the rent on a condominium conversion that can be found here. The issue that the Court had to review was not the substance of whether a landlord could raise the rent; rather, it was whether a tenant could seek attorneys’ fees in the action.

In 1981, James W. Wiley (“Tenant”) had leased a unit in a building subject to the Los Angeles Rent Stabilization Ordinance (“LARSO”). In 2011, the Landlord purchased the property where the Tenant lived and sent a notice to the tenants that the rent would increase from $1,401 to $3,000 a month. If the building was not subject to the LARSO, the Landlord could have been within his rights to raise the rent to that level; however, the LARSO controls how much a Landlord can raise the rent on a tenant annually.

First, the Los Angeles Housing Department (“LAHD”) sent a letter to the Landlord stating that the rent increase violated the Los Angeles Rent Stabilization Ordinance (LARSO). Ignoring this letter, the Landlord filed a complaint in the instant action against the Tenant for declaratory relief and intentional interference with prospective economic advantage. The Complaint alleged that the two parties were having a dispute on the correct rental rate and sought resolution as to the amount of rent that could be charged.

The Landlord believed that his rental rate increase did not violate the LARSO, while the Tenant believed that it did in fact violate the LARSO. The Landlord also wanted to recover costs of the suit, compensatory damages, and further relief as the court deemed fit. In response, the Tenant sought a dismissal of the action with prejudice, recovery of the cost of suit and recovery of attorneys’ fees. The trial court found in favor of the Tenant due to the property not being an exempt from the LARSO, and thereafter the Landlord appealed. The appellate court also found in favor of the Tenant and affirmed the judgment.

After winning on appeal, the Tenant filed a motion seeking the recovery of the attorney’s fees of about $17,000 on the basis of the attorney fees provision in his rental agreement. Upon examination of the rental agreement the trial court found for the Landlord stating that the attorney fees provision was too broad.

On appeal it was found that the rental agreement entailed recovery for attorney fees if the Landlord brings action on the account of the lessee’s failure to pay the rent. When the Landlord increased the rent, believing that his increase would not be affected by the LARSO, and the Tenant failed to pay, the collection of the rent was Burien’s cause for action. The action brought for declaratory relief was brought to enforce the payment of the increase in the rent and for the damages caused.

The Court concluded that the attorney fees provision in the rental agreement applied to the instant action and the matter was remanded for the Tenant to be reimbursed for the attorney fees. The Court relied upon Civil Code Section 1717 which states, “In any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.”

Civil Code Section 1717 can be applied when the recovery sought in the action was declaratory and as long as the action had a contract involved.

Attorneys’ fees provisions in rental agreements are an important tool for landlords and tenants. They are important to review to determine and there may be reasons why a landlord may or may not want an attorneys’ fee provision in a rental agreement. Further, there are methods to cap attorneys’ fees to avoid the outcome of this case where the Landlord was required to pay over $17,000 in attorneys’ fees for the tenant’s attorney.

Please contact Attorney Anthony Marinaccio at 818-839-5220 for more information regarding these issues on landlord-tenant matters.