New Fee Shifting Statute Provides Additional Protection To Residential Tenants

Residential leases commonly contain clauses that permit the landlord to recover all attorneys fees and costs from the tenant in the event the tenant breaches the lease.  Now, tenants will automatically have that same right against landlords.  There is a new law that affects all residential leases.  The full text of the law is found at N.J.S.A. §2A:18-61.66 and §2A:18-67, and states in full:

§ 2A:18-61.66. Payment of certain fees, expenses incurred in landlord-tenant disputes.

If a residential lease agreement provides that the landlord is or may be entitled to recover either attorney’s fees or expenses, or both, incurred as a result of the failure of the tenant to perform any covenant or agreement in the lease, or if the lease provides that such costs may be recovered as additional rent, the court shall read an additional parallel implied covenant into the lease. This implied covenant shall require the landlord to pay the tenant either the reasonable attorney’s fees or the reasonable expenses, or both, incurred by that tenant as the result of the tenant’s successful defense of any action or summary proceeding commenced by the landlord against the tenant, arising out of an alleged failure of the tenant to perform any covenant or agreement in the lease, or as the result of any successful action or summary proceeding commenced by the tenant against the landlord, arising out of the failure of the landlord to perform any covenant or agreement in the lease.

The court shall order the landlord to pay such attorney’s fees or expenses, or both, that are actually and reasonably incurred by a tenant who is the successful party in such actions or proceedings to the same extent the landlord is entitled to recover attorney’s fees and expenses, or both, as provided in the lease. The court shall have discretion with respect to awards of attorney’s fees or expenses, or both, for tenants to the same degree as it has with respect to awards of attorney’s fees or expenses, or both, for landlords as provided under the lease either explicitly or implicitly. An order based on this implied covenant shall require the landlord to pay the tenant such costs either as money damages or a credit against future rent, as determined by the tenant. Any waiver of this section shall be void as against public policy.

Notwithstanding the foregoing, in an action or summary proceeding for non-payment of rent a tenant who pays all rent currently due and owing on or after the filing of the complaint but prior to entry of a final judgment, and whom the court finds presented no meritorious defense to the complaint other than said payment, shall not be deemed to have successfully defended against the action or summary proceeding for the purposes of the award of attorney’s fees or expenses, or both.

As used in this act “expenses” shall include expenses directly related to the litigation including, but not limited to, court costs and expenses for witnesses. “Expenses” shall not include personal expenses for travel, reimbursement for missed work time, or child care.

§ 2A:18-61.67. Notice provided in lease.

If a residential lease agreement provides that the landlord is or may be entitled to recover attorney’s fees or expenses, or both from the tenant for any action or summary proceeding arising out of the lease, as described in section 1 of P.L.2013, c.206 (C.2A:18-61.66), the lease clause shall also contain the following provision in a bold typeface in a font size no less than one point larger than the point size of the rest of the lease clause or 11 points, whichever is larger:

IF THE TENANT IS SUCCESSFUL IN ANY ACTION OR SUMMARY PROCEEDING ARISING OUT OF THIS LEASE, THE TENANT SHALL RECOVER ATTORNEY’S FEES OR EXPENSES, OR BOTH FROM THE LANDLORD TO THE SAME EXTENT THE LANDLORD IS ENTITLED TO RECOVER ATTORNEY’S FEES OR EXPENSES, OR BOTH AS PROVIDED IN THIS LEASE.

The clear purpose of the new law is to “even the playing field” in the balance of bargaining power between the landlord and the tenant.   There are several key provisions of the law.  First, the fee shifting statute only comes into play if the lease agreement provides that the landlord may recover fees from the tenant in the event the landlord successfully brings an action against the tenant.  If the lease does not provide for fee shifting in favor of the landlord, there will be no fee shifting in favor of the tenant.  Once this initial hurdle is met, the reciprocal fee shifting in favor of tenant does not have to be explicitly written into the lease in order to occur.  The law makes clear that this reciprocal fee shifting is implied, rather than explicit.  It also makes clear that the landlord cannot require the tenant to waive this right.

Second, a tenant that is successful in a lawsuit may be entitled to recover attorneys fees and costs from the landlord whether the tenant is bringing the action as a plaintiff or defending the action as a defendant.  There is an exception to this provision, however.  That exception is when a landlord brings an eviction action for nonpayment of rent, and the tenant has no meritorious defense, but the tenant pays all outstanding amounts owed to the landlord prior to an entry of judgment.  In that situation, the eviction action is typically dismissed, which would make the tenant a “successful” party.  But the law makes clear that in those types of cases, the tenant will not be deemed to have successfully defended the action, and will not be entitled to recover fees and costs from the landlord.

Another important point of the new law is the limitation on what counts as recoverable attorneys fees and expenses.   The attorneys fees must be “actually and reasonably incurred by the tenant” in order to be recoverable from the landlord. This means that a pro se tenant could not seek recovery of attorneys fees from the landlord, as no fees have actually been incurred.  This leaves open the question of whether a tenant successfully represented by legal services could recover attorneys fees from the landlord, since those services are typically provided to the tenant free of charge.  The attorneys fees also have to be “reasonable.”  In the past, courts have always had discretion to reduce landlord’s attorneys fees on the grounds that the fees were not “reasonable;” the courts retain this same discretion with regard to tenant’s attorney fees.  The term “expenses” is also narrowly defined to include only those costs directly associated with the court proceeding, meaning filing fees, service fees, and witness fees, if any.  Incidental expenses like child care, travel, and missed work are specifically not included in the definition of “expense.”

Finally, if a lease contains a specific provision for the payment of the landlord’s legal fees in the event the landlord brings a lawsuit against the tenant, the new law requires that the lease contain very specific language, in a very specific format, giving that same right to the tenant.  Going forward, residential landlords who want to retain their own fee shifting rights must be careful to include this new language in all residential leases in order to comply with the new law.

As a result of the new fee shifting provisions in the landlord tenant law, landlords should exercise caution when filing lawsuits against tenants.  In particular, prior to bringing a lawsuit,  landlords should make sure that they have followed all notice and service requirements regarding written notices to tenant; that they have complied with all requirements regarding the tenant’s security deposit, and should consider any possible meritorious defenses to the lawsuit.  Failure to take these steps may result in an unexpected payment of the tenant’s reasonable attorneys fees and litigation costs.