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ATTORNEYS FEE PROVISION IN PROPRIETARY LEASE NOT APPLICABLE TO SUBLEASE ABSENT SUBLESSEES AGREEMENT A Ganfer & Shore, LLP Client Advisory March 2008

Most residential leases, including proprietary leases used by cooperatives, provide for the Cooperative to recover legal fees in the event it prevails in litigation with a shareholder-tenant.When the shareholder-tenant subleases an apartment, such a provision will not automatically apply in litigation between the sublessor and sublessee, according to the decision in Matter of Windsor Park Nursing Home (Gustaitis), 850 N.Y.S.2d 342 (Sup. Ct. Queens Co. Jan. 10, 2008).

In this case, the shareholder-tenant sublet his cooperative apartment to a subtenant, who failed to vacate the apartment when the sublease expired.The sublessee eventually vacated, but only after causing the sublessor to incur $20,000 in legal fees, which he sought to recoup.The sublease contained no clause providing for the prevailing party to recover any legal fees, but the sublessor asserted that the sublessee was bound by a legal-fee clause in the proprietary lease.The sublessors position was based on a sublease provision that [t]his lease and [sub]leasees leaseholder interest herein are and shall be subject, subordinate, and inferior to any liens or encumbrances, [or] the interest payable on any such extensions of such liens or encumbrances.

The court held this language to be insufficient to require the sublessee to pay legal fees because any obligation to pay legal fees under the proprietary lease was simply a contact right relating to the property, not a lein or encumbrance.As the decision observes, [c]ourts historically have refused to allow for recovery of attorneys fees absent specific language requiring such payment.Here, [t]here [was] nothing in the sub-lease that subjects [the sublessee] to the peripheral contract rights that do not run with the property.

Apart from any issue that may arise between a subleasing shareholder-tenant and the sublessee, Cooperative boards may wish to ensure that the Cooperative itself is protected from any potential liability for any attorneys fees or other expenses arising from sublets.For example, the legal-fee clause in most proprietary leases does not cover situations where the Cooperative incurs legal expenses to respond to supplemental proceedings involving a judgment against sublessee or as the result of the sublessees misconduct in the building.Therefore, where a Cooperatives approval is required before a shareholder-tenant may sublet, the Cooperative may wish to require a shareholder-tenant to agree to reimburse any legal fees or expenses incurred by the Cooperative as a result of the subtenancy, as a condition of approving the sublease.More generally, Cooperatives may wish to amend their proprietary leases or take other appropriate action to broaden their rights to recover legal fees that they incur in disputes involving shareholder-tenants, because most proprietary leases include only fees arising from the shareholder-tenants breach of the proprietary lease itself.

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