Commercial leases in the state of Kansas, not unlike the rest of the nation, are entered into on a routine basis. With the massive land area that makes up the overwhelming majority of the total size of Kansas, there is plenty of terrain to support office buildings, industrial properties, and strip shopping centers. Some of Kansas’ largest cities are Overland Park, Olathe, and Lawrence. In these cities, one can find a sizable amount of commercial real estate and corresponding lease deals occurring regularly.
In the preponderance of instances, the owner of a commercial property for rent (also known as a “landlord”) enters into a written agreement with a company (also known as a “tenant”) interested in occupying a portion of such owner’s commercial real estate. This written agreement is known as a “commercial lease”. Some commercial leases are heavily negotiated before being signed, taking weeks or even months to get to the point of execution. Others are not. The sophistication of the parties is a relevant factor contributing to whether or not a commercial lease is negotiated, as is the use of an attorney who practices real estate law.
One type of clause often found within Kansas commercial leases provides for the payment of attorney’s fees. This type of clause can be used for the benefit of either the landlord or the tenant and frequently comes into play when a lawsuit or legal proceeding is filed, awarding the “prevailing party” its reasonable attorney’s fees. What might such a clause look like in practice? Below are three examples from commercial lease documents with which this law firm has had involvement as an advisor, advocate, and/or negotiator.
- “If any lawsuit, judicial reference, or arbitration is commenced which arises out of or relates to this Agreement, the prevailing party shall be entitled to recover from each other party such sums as the court, referee, or arbitrator may adjudge to be reasonable attorneys’ fees, including the costs for any legal services by in-house counsel, in addition to costs and expenses otherwise allowed by law.”
- “In the event that any action is filed in relation to this Lease, the unsuccessful party in the action shall pay to the successful party, in addition to all the sums that either party may be called on to pay, a reasonable sum for the successful party’s attorney’s fees.”
- “In the event of any legal action or proceeding brought by either party against the other arising out of this Lease, the prevailing party shall be entitled to recover reasonable attorneys’ fees and costs (including, without limitation, court costs and expert witness fees) incurred in such action. Such amounts shall be included in any judgment rendered in any such action or proceeding.”
As the reader can clearly see, there is no universal attorney’s fees clause in Kansas commercial leases but instead considerable variability. Each clause, paragraph, and section should be read carefully, and one should not assume that any provision of the lease document is “standard”. The engagement of competent legal counsel to review a commercial lease in its entirety is advisable.
When it comes time to put an attorney’s fees clause to work, the natural focus becomes determining whether or not such a clause is enforceable. The Kansas Residential Landlord and Tenant Act states that no residential lease may provide that the tenant or the landlord agrees to pay either party’s attorney’s fees. K.S.A. § 58-2547(a)(3). A provision in a residential rental agreement providing that the tenant or landlord agrees to pay either party’s attorney’s fees is unenforceable. K.S.A. § 58-2547(b). Are laws governing commercial leases in Kansas substantially different such that attorney’s fees clauses are, by contrast, actually enforceable?
Yes, an agreement included in a commercial lease for recovery of reasonable attorney’s fees is valid and enforceable in Kansas. Oak Park Inv. Co. v. Lundy’s, Inc., 6 Kan. App. 2d 133, 136, 626 P.2d 1236, 1238 (Kan. Ct. App. 1981). Let’s review the history of the Oak Park case to better understand the principle for which it stands.
Oak Park Investment Company brought a lawsuit to recover for a breach of a commercial lease, and judgment declaring a breach was thereby entered against the defendant, Lundy’s, Inc., for unpaid rent and charges due under the commercial lease. Id. at 133, 1236. The commercial lease contained a clause authorizing recovery of attorney’s fees necessary to prosecute a lawsuit to recover damages in the event of a breach of the lease by either party. Id. Despite the existence of that clause, the trial court in Oak Park denied the plaintiff (Oak Park Investment Company) recovery of its attorney’s fees. Id. Plaintiff Oak Park appealed. Id.
The Oak Park appellate court reviewed prior decided cases and identified one Kansas case that allowed an attorney fee based on a provision in a contract, which such contract was the basis for the lawsuit. Id. at 135, 1237. It also reviewed a law review article whose author had collected ninety (90) Kansas statutes pertaining to the recovery of attorney’s fees, only six of which either restricted or prohibited agreements for recovery of attorney’s fees, and none of those six related to commercial leases. Id. at 135, 1238. In consideration of past precedent and the other research it had gathered and analyzed, the appellate court in Oak Park specifically held as follows: “an agreement included in a commercial lease for recovery of reasonable attorney fees is valid and enforceable in Kansas, in the absence of any statutory prohibition against such a provision.” Id. at 136, 1238. It therefore reversed the trial court’s order denying an attorney fee and remanded the case to said court with directions to enter judgment in an additional amount of $2,250.00 to cover reasonable attorney’s fees in prosecuting the case. Id.
Having been decided in 1981, Oak Park is now somewhat dated. A lot can happen in forty or more years. (Since 1981, the world has seen the Challenger space shuttle disaster, the stock market(s) tank on Black Monday, the fall of the Berlin Wall, and the creation of Amazon, Netflix, Google, Facebook, and the iPhone, in that order, to name only a handful of significant events.) Has the law in Kansas with respect to the validity and enforceability of the recovery of reasonable attorney’s fees under commercial leases changed since 1981?
Oak Park has been favorably cited by several cases decided substantially subsequent to it, one as recent as 2016; see, e.g., CBK Props. II v. La Tinajera, Case No. 15-9259-JAR-GLR (D. Kan. May 3, 2016) (stating that, because the Kansas Residential Landlord Tenant Act and K.S.A. § 58-2547 were found inapplicable by the court to the facts at hand, there is no statutory prohibition against an attorney’s fee provision in a lease); Bancamerica Commercial Corp. v. Trinity Indus., 900 F. Supp. 1427, 1480 (D. Kan. 1995) (stating that provisions allowing for the recovery of attorney’s fees in commercial leases are valid and enforceable in the state of Kansas); Benedictine Coll., Inc. v. Century Office Prods., 868 F. Supp. 1239, 1241 (D. Kan. 1994) (“Provisions allowing for the recovery of attorneys fees in commercial leases are valid and enforceable in Kansas.”). Accordingly, Oak Park still appears to be good law as of this blog post’s date of publication.
Commercial leases should be written and reviewed carefully. If a dispute later arises out of one and an applicable attorney’s fees provision is called upon, such provision for recovery of reasonable attorney’s fees will very likely be found valid and enforceable in the state of Kansas. That may be welcome news for some and unwelcome news for others.
While our website and blog posts are intended for informational purposes only and are not intended as legal advice or as a legal opinion, we try to provide information that might facilitate a more informed discussion at a later point in time. To that end, Kincaid Business & Entrepreneurial Law, LLC ® cordially invites those in search of legal services concerning commercial real estate leases or commercial real estate disputes in Kansas or Missouri to contact us at 913-735-7707 or schedule with us here. You may also wish to read about Kansas residential lease agreements on our blog.
Matthew T. Kincaid