Tenant Entitled to Attorney’s Fees After Successfully Defending Landlord’s Holdover Action—Discretion to Deny Attorney’s Fees Should Be Used Sparingly Because of the Purpose of the Controlling Statute

The First Department reversed the Appellate Term finding that a tenant who successfully defended a holdover action brought by the landlord was entitled to attorney’s fees. After several lease renewals at a “preferential” rate, the landlord required that a renewal be at the “legal” rate (several thousand dollars higher than the preferential rate) and started a holdover proceeding when the tenant refused to pay the “legal” rate.  Appellate Term decided the tenant was not entitled to attorney’s fees because the landlord had a “colorable claim” that it was entitled to charge the “legal” rate.  The First Department explained that whether the landlord had a “colorable claim” was not the correct standard to apply:

Under Real Property Law § 234, when a residential lease provides for a landlord’s recovery of attorneys’ fees resulting from a tenant’s failure to perform a lease covenant, a reciprocal covenant is implied requiring the landlord to pay the tenant’s attorneys’ fees incurred as a result of, inter alia, the tenant’s successful defense of an action or summary proceeding commenced by the landlord arising out of the lease … . To support an award of attorneys’ fees, the tenant must be the prevailing party, that is, the result must be substantially favorable to the tenant … .

Here, the terms of the parties’ lease plainly triggers the reciprocal covenant mandated by Real Property Law § 234, and the tenant is entitled to recover the attorneys’ fees incurred in his successful defense of the holdover proceeding. Contrary to the landlord’s assertion, the tenant was the prevailing party regardless of whether the holdover proceeding was formally dismissed, since a tenant is entitled to recover fees “when the ultimate outcome is in his favor, whether or not such outcome is on the merits” … .

Despite the tenant’s status as the prevailing party, the Appellate Term nevertheless denied the fee request because, in its view, the landlord’s possessory claim was “of colorable merit” … . This was an improper standard. “The overriding purpose of [Real Property Law § 234] is to provide a level playing field between landlords and tenants, creating a mutual obligation that provides an incentive to resolve disputes quickly and without undue expense” … . Because it is a remedial statute, Real Property Law § 234 “should be accorded its broadest protective meaning consistent with legislative intent” … . The Appellate Term’s conclusion that a tenant’s claim to reciprocal attorneys’ fees can be denied whenever a landlord asserts a colorable claim undermines the salutary purpose of Real Property Law § 234. A “colorable claim” standard would result in the gutting of the protections afforded by the statute because it would allow courts to deny fees whenever the landlord can make a nonfrivolous legal argument in support of its position.

Although courts have some discretion to deny attorneys’ fees sought under Real Property Law § 234, such discretion should be exercised sparingly … . Thus, a request for attorneys’ fees should be denied only where a fee award would be manifestly unfair or where the successful party engaged in bad faith … .

Here, the landlord has made no showing of any bad faith on the tenant’s part. Matter of 251 CPW Hous LLC v Pastreich, 2015 NY Slip Op 00208, 1st Dept 1-6-15