Attorneys' Fees, Jury Waiver and Arbitration

What these clauses do

Most lease clauses deal with the building. These deal with the fight. They set who pays legal costs if the relationship breaks down, who decides the outcome, and in some leases, whether the dispute goes to court at all. Because they only matter when something has gone wrong, they are easy to skim. They also shape how both sides behave long before a lawsuit is filed.

Think about the disputes an industrial occupier actually runs into: a fight over who pays for a roof replacement, restoration charges at move-out, a denied sublease, a holdover bill, or a disagreement over renewal rent. The clauses below decide how each of those gets resolved and what it costs to get there.

Prevailing party fees

A prevailing party clause shifts legal fees to whoever loses. The idea is to discourage weak claims and encourage settlement, since each side has to weigh the chance of paying two sets of lawyers instead of one. In practice, deciding who prevailed is not always simple when each side wins part of the case, so the lease or a court may have to sort that out.

Look for a second, quieter provision: the landlord's right to charge you for legal work on default notices even when no lawsuit follows. That can be reasonable when a real default existed. It becomes a problem when fees are charged for notices that turn out to be wrong, or at rates that bear no relation to the work.

Fee shifting changes the math of every dispute. A tenant with a solid claim for a few thousand dollars may hesitate to sue if losing means paying the landlord's legal bill as well as its own. A landlord chasing a doubtful charge faces the same risk in reverse. That pressure tends to push both sides toward a negotiated answer, which is usually the cheapest outcome for everyone.

Fee clauses should run both ways. In California, a contract fee clause that favors only one side is generally treated as reciprocal for claims on the contract, but do not rely on the statute to fix a one-sided draft. Write it as mutual.

Judge, jury or referee

Many landlord-drafted leases ask both parties to give up a jury trial. The reasoning is that a judge can be faster, less expensive and more predictable on technical lease issues. Whether a pre-dispute jury waiver will hold up depends on state law. California courts have generally declined to enforce them, which is why many California leases use judicial reference instead, sending the case to a privately paid referee, often a retired judge, whose decision is treated like a court judgment. Ask your attorney which approach is enforceable where your building sits.

Related clauses decide where the case is heard. Most industrial leases apply the law of the state where the property is located and send lawsuits to the local county courts. If your company is headquartered elsewhere, expect to litigate near the building, not near your home office.

Arbitration and mediation

Arbitration moves a dispute out of court to a private decision maker. It can be faster and more confidential, and the parties can require an arbitrator with commercial real estate experience. It is not automatically cheaper. Arbitrators charge by the hour, the process can carry many of the same steps as litigation, and the ability to appeal a bad decision is very limited. If you agree to arbitration, define the rules, the arbitrator's qualifications, how costs are split, and what stays out of it. Landlords typically carve out eviction and collection actions.

A mediation step before any lawsuit or arbitration is often a practical middle ground, provided it has a short deadline so it cannot be used to stall.

A narrower kind of arbitration shows up in option clauses: if you and the landlord cannot agree on renewal rent, appraisers or brokers decide. Understand those mechanics before you rely on the option. As I note in Industrial Income, your attorney negotiates the lease, but you are the one who lives with it, so direct their attention to these clauses.