Case Notes

The appeals court noted that Ohio courts follow the so-called "American rule" on attorney compensation, which requires that each party to a litigation pay its own attorney fees. Exceptions to this exist only where statute provides otherwise, bad faith is shown, or the parties have contracted to shift fees under defined circumstances. Here, the parties had so contracted by entering into their lease stating that attorney fees and costs would be shifted from the prevailing party to the losing party in case of a lawsuit based on the contract. Unfortunately, the parties here had not defined the term "prevailing party," and the question of who met that definition was complicated by the fact that some counts were decided in the landlord's favor and others in the tenant's favor.

To determine which was the prevailing party in this case, the appellate court turned to the analogous case of EAC Properties LLC v. Brightwell, 10^th Dist. Franklin No. 13AP-773, 2014-Ohio_2078, in which an appeals court upheld a trial court's award of attorney fees to a tenant after the landlord lost its bid to obtain $30,000 in allegedly-owed back rent, while the tenant was ordered to pay utility bills of less than $5,000. The reasoning for finding the tenant was the prevailing party was that it won on the case's main issue of back rent.

Applying the EAC Properties reasoning to the case before it, the court here determined that the "main issue" was the back-rent claim for an amount in excess of $150,000. "Count 1 represented the largest dollar amount sought by Simbo. M8′s defense was heightened due to the significant monetary exposure under Count 1. In contrast, Simbo was awarded $32,158.34 and $5,000, respectively, on Counts 2 and 3 and prevailed on M8′s counterclaim that sought damages in an amount exceeding $25,000," stated the court. In addition, "[d]efense counsel spent the largest percentage of time defending Count 1, and the majority of the trial was allocated to Count 1."

The court noted further that both parties to the lease were sophisticated, and they could have defined "prevailing party" in the lease as they chose, especially in light of the precedent set in EAC Properties precedent. While they did negotiate and alter other proposed lease terms prior to signing, they did not change the fee-shifting language of the attorney-fee provision. The court therefore concluded that the provision as agreed to memorialized the intent of both parties, and the court was bound to uphold that intent.

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No Duty to Collect Rent from Subsequent Tenant

When a tenant breached its lease by quitting the premises before the end of the lease term, the landlord was not required to collect rent from the subsequent lessee, so the trial court erred in offsetting the original lessee's liability by the amount never collected from the subsequent lessee. Iskalo Elec. Tower LLC v. Stantec Consulting Servs. Inc., 2019 N.Y. App. Div. LEXIS 5925.

Iskalo Electric Tower LLC (IET) entered into a lease with tenant Stantec Consulting Services Inc. (Stantec) for office space in its commercial property. Using this lease as collateral, lessor IET then obtained a bank loan.

One section of the lease stated: "Should Landlord elect to reenter as provided in subsection (b), or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided by law, Landlord may, from time to time, without terminating this Lease, relet the Premises or any part of the Premises in Landlord's or Tenant's name, but for the account of Tenant, for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Term) and on such conditions and upon such other terms (which may include concessions of free rent and alteration and repair of the Premises) as Landlord, in its reasonable discretion, may determine, and Landlord may collect and receive the rent. Landlord will in no way be responsible or liable for any failure to relet the Premises, or any part of the Premises, or for any failure to collect any rent due upon such reletting."

Stantec vacated the premises prior to the end of the lease term. The bank that had extended the loan to IET therefore demanded new security for its loan. Because of this, IET's sole owner "leased" the premises Stantec had previously occupied to Iskalo 65 LB LLC (65 LB), a company also solely owned by the owner of landlord IET. The agreement between IET and 65 LB was titled "Lease Agreement" and contained substantially the same terms as those in the lease between IET and former-tenant Stantec. 65 LB never actually moved into the premises and IET usually failed to collect any rent from 65 LB, doing so only when pressed to by the bank from which it had borrowed money.

IET sued Santec under various theories, including breach of contract. Santec asserted in response that IET had a duty to re-let the premises and that it failed to really do so. Santec sought an offset to its liability for unpaid rent for the amounts IET collected from 65 LB. It also alleged breach of contract for IET's failure to collect all the rent due under the second lease, and so sought an offset for the amount IET did not collect from 65 LB in accordance with the terms of the replacement lease. Former lessee Santec was found to have breached the lease by quitting the premises and thereafter failing to pay rent, but the trial court allowed an offset against its liability of the rent collected — as well as the rent not collected but due — under the terms of the 65 LB lease.

On appeal, landlord IET argued that the lease between it and 65 LB was not really a lease at all, so there should have been no offset of liability for original lessee Santec. The court was not convinced, noting that the second lease must be enforced because, on its face, it described a landlord/tenant relationship.

As to IET's failure to collect rent from second lessee 65 LB, the court relied on the first lease's language allowing the landlord to relet the premises, but specifically permitting it not to collect rent if it did so. Thus, former tenant Santec should not have been granted an offset of the monies it owed to IET based on IET's failure to collect rent from second lessee 65 LB. However, rent that IET did collect from 65 LB (at its lending bank's insistence) was properly ordered deducted from the amount Santec owes for breach of contract.