Possibly the most important thing you can put in a residential lease

Here it is:

“If any legal action is brought by Tenant or Landlord related to this Agreement, the prevailing party shall be entitled to recover attorneys fees not to exceed $500.00.”

Why is this so important?

There exists a class of tenant advocacy lawyers who make their living in the following way:

  • Tenant fails to pay rent
  • Tenant receives notice to pay, still fails to pay
  • Landlord files eviction papers
  • Tenant gets one of these lawyers, who agrees to take the tenant as a client on contingency
  • Lawyer demands a jury trial for his client

So, the tenant has agreed to share something like 30-40% of any move-out payment he gets with his lawyer.

The lawyer, knows the following:

  • Cost of a jury trial to the Landlord is something like $10-15k, and this does not guarantee victory
  • In event there is an attorney fee provision in the lease, but it is not capped, the lawyer can claim attorneys fees of $20k in the event his client wins

In this situation, the landlord settles, because he’s trying to get his unit back and there’s no chance he’s exposing himself to tens of thousands of dollars in potential liability.

But, if you have capped the attorneys fees at $500.00, here’s the tenant’s lawyer’s situation:

  • If you go to court, his client is probably going to lose
  • He’s going to have to spend a lot of time fighting, and there is nothing in it for him (since, even in the event his client wins, s/he won’t be entitled to any money)
  • So, the only way for him to get paid for not working is to settle (in which case he takes 30-40% of whatever you pay the tenant)
  • If you are willing to push it, and refuse to settle easily, you’ll be able to negotiate a very cheap move-out

The one thing preventing you from using the strategy above is the legal fees on your side. As I sit here and write this, I’m thinking  that I should train myself to go through the court paperwork process up through the start of a jury trial. That way, the clock isn’t running on fees while we wait to go to court. In that situation, there is literally no reason to settle, so I would have great leverage to extract the best possible deal.

Actually, sounds like a plan…

[Note: Obviously, I am not a lawyer, and no one should treat this blog post as legal advice.]