In the United States, the general rule about legal fees is that each party to a lawsuit pays his or her own fees. However, like any rule, there are exceptions. In the event a contract specifically provides for the payment of legal fees, or a statute allows the recovery of legal fees, the prevailing party may apply to the court for reimbursement. There is no statute in New Jersey that allows recovery of legal fees for a successful tax appeal. The tenant may only recover the fees from a landlord if the lease expressly provides for such a recovery, or if the landlord separately agrees to pay them. As the parties learned in Crosspoint Developers v. Wegmans Food Markets, the express terms of the lease can lead to unforeseen results.
Lowes, as a tenant in a retail shopping center, filed a tax appeal and was successful in getting a reduction in the assessment. Since the appeal involved an entire retail center, all tenants received the benefit of Lowe’s efforts through a reduction in their pro rata shares of taxes.
The landlord determined the pro rata reduction in taxes and provided each tenant with a credit. One of the other tenants, Wegmans, exercised its audit rights under the lease and discovered that the landlord deducted $57,866.31 in legal fees and appraisal costs prior to allocating the refunds to the tenants. The net result was that each tenant shared in the cost of the appeal. Wegmans argued that it did not have an obligation to pay any portion of the legal fees or appraisal costs, and deducted the pro rata legal charge from its next rent payment. The landlord filed an eviction action for failure to pay rent which was aggressively defended by Wegmans.
The New Jersey Superior Court looked to the controlling language in the Wegman’s lease which stated:
In the event that Tenant shall obtain any reduction in assessment or in the amount of taxes, Tenant shall be entitled to its pro rata share of such reduction or rebate of Taxes paid and its reasonable costs in contesting such assessment or tax bill, including attorneys’ fees [.]
What did the landlord argue? The landlord argued that the use of the term “Tenant” in this section is solely an example to show how reimbursement would work for any party to the contract who secured a tax reduction. The landlord also argued the Court should take into consideration the equitable principle that all those who enjoy a common benefit should be obligated to pay their fair share of the costs. This would thus entitle the landlord to reimbursement for its successful efforts, or the successful efforts of an eligible tax appeal tenant, whether or not the tenant was aware of the filing or was a party to filing. The landlord’s position was that the lease specifically provided for this deduction.
What did the tenant argue? The tenant argued the contract terms are plain and unambiguous and since under the lease the “Tenant,” Wegman’s, did not file an appeal and obtain a reduction, there can be no deduction for legal fees.
What did the Court hold? First, the Court noted that the landlord and tenant were sophisticated parties and had an opportunity to negotiate the terms of the lease. Accordingly, the court would look to the language in the lease and, providing it was clear, strictly apply the language. Next, the Court looked to the definition of the term “Tenant” which was clearly defined as Wegmans – no other tenant. Finally, the Court found nothing in the lease that allows the landlord to be reimbursed for legal fees and expenses when the landlord obtains a reduction in a tax assessment. In the end, Wegman’s prevailed and did not have to pay any legal fees or expenses relating to the tax appeal.
Many of these problems can be avoid by carefully drafting a lease. More importantly, landlord and tenants should work together when challenging tax assessments to avoid problems that cost every party additional monies from court filings.