Attorney's Fees Clause in a California Retail Lease

The attorney's fees clause in a California retail lease decides who pays the legal bill when a dispute lands in court — and in a fight over a $3.50/SF NNN space in Orange County or the Inland Empire, that bill routinely runs $40,000 to $150,000 before anyone reaches a verdict. Most tenants skim past the provision because it reads like a formality buried near the boilerplate. It is not. It is the single term that determines whether a landlord can afford to sue you over a $9,000 dispute, and whether you can afford to defend yourself when they do. We read this clause on every deal we handle, and here is exactly how it works in California.

What is an attorney's fees clause in a California retail lease?

An attorney's fees clause is the lease provision that says the losing party in a lawsuit or arbitration must reimburse the winning party's reasonable legal costs. In a retail lease, it typically covers rent-collection actions, unlawful detainer (eviction), disputes over CAM charges, and breaches of the operating covenants. Without it, the default rule in California is the "American Rule": each side pays its own lawyers regardless of who wins.

Here is the short answer tenants search for: a properly drafted attorney's fees clause means the prevailing party recovers its legal fees from the loser. In California, even if the lease says only the landlord can recover fees, Civil Code section 1717 automatically makes that right mutual — so a tenant who wins can collect fees too. The clause is enforceable, but the reciprocity is guaranteed by statute, not by the landlord's goodwill.

How California Civil Code 1717 rewrites a one-sided fees clause

Landlord-drafted leases almost always start one-sided. The clause will say the tenant pays the landlord's attorney's fees if the landlord enforces the lease — and say nothing about the tenant recovering fees when the tenant wins. California law does not let that stand. Civil Code section 1717 provides that where a contract awards attorney's fees to one party, the fees are available to whichever party prevails, whether or not that party is the one named in the contract. You can read the statute directly at the California Legislature's site (Civil Code § 1717).

The practical effect for a Southern California retail tenant is meaningful. A landlord who sues over disputed CAM overcharges and loses can be ordered to pay your legal fees, even though the lease only mentioned the landlord recovering fees. This reciprocity cannot be waived by contract for actions on the lease, which is why we do not spend negotiating capital demanding symmetrical language — the statute already delivers it. We spend that capital on the terms 1717 does not fix.

What does "prevailing party" actually mean?

This is where the money is won or lost. Section 1717 defines the prevailing party as the one who recovers greater relief on the contract, and it gives the court discretion to decide there is no prevailing party at all — for example, when both sides win some claims and lose others. In a messy retail dispute, that discretion matters. A tenant who is found to owe $4,000 in back rent but successfully defeats a landlord's $60,000 damages claim may well be the prevailing party, or the court may declare a wash and leave each side with its own fees.

Leases sometimes try to define "prevailing party" more rigidly — for instance, tying it to any monetary recovery, so a landlord who wins $1 collects full fees. We push back on definitions that let a token recovery trigger a six-figure fee award. A cleaner standard ties fees to the party that obtains a net monetary judgment or the material relief sought, which keeps the clause honest for both sides.

The costs an attorney's fees clause can put on the table

Tenants underestimate the range. A garden-variety unlawful detainer in Orange County Superior Court might resolve for $8,000 to $20,000 in fees per side. A contested breach action with expert testimony over a percentage-rent audit or a co-tenancy default can climb past $100,000. Because the clause usually reaches "reasonable attorney's fees and costs," it can also sweep in expert witness fees, deposition costs, and appellate fees if the losing side appeals.

Two dollar figures deserve special attention in California retail. First, fees incurred to enforce a personal guaranty often ride along with the lease action, meaning a guarantor's personal assets can be exposed to the fee award, not just the business entity's. Second, disputes over a security deposit at lease end frequently trigger the clause when a tenant sues to recover a wrongfully withheld deposit — and a prevailing tenant there recovers fees under 1717.

How we negotiate an attorney's fees clause for tenants

Because reciprocity is already handled by statute, our negotiation focuses on scope and predictability. We look at whether fees are limited to litigation or extend to pre-suit demand letters and lease amendments; the broader the language, the more a landlord's routine correspondence becomes a billable event you might reimburse. We favor language that limits recoverable fees to formal legal proceedings actually filed and prosecuted.

We also watch for the interaction with the default and cure clause. A landlord should not be able to run up fees before you have had your contractual cure period to fix a non-monetary default. We tie fee recovery to a properly noticed, uncured default so that fees do not accrue during the window you are entitled to use to make things right. On larger deals we occasionally negotiate a soft cap on recoverable fees for smaller-dollar disputes, which discourages a landlord from litigating a $5,000 CAM disagreement into a $50,000 fee exposure.

Common carve-outs and traps in the fees provision

A few traps recur across Southern California retail leases. Watch for fees tied to "any dispute arising out of the tenancy" rather than an action on the lease — broad tort-style language can attempt to reach claims that section 1717 would not otherwise cover, since 1717 applies to actions on the contract. Watch for one-way indemnity provisions dressed up as fee clauses, where the tenant agrees to defend and indemnify the landlord against third-party claims; these are a separate risk from the mutual prevailing-party fee award and are not cured by 1717.

Also confirm how the clause treats settlement. Section 1717 bars a fee award to either side when an action on the contract is voluntarily dismissed or settled, which actually protects a tenant who resolves a case before trial. We make sure the lease does not try to contract around that protection by awarding fees on dismissal.

Attorney's fees and the rest of your lease

The fees clause never lives alone. It amplifies every other risk in the document, because it decides who funds the fight over that risk. A weak letter of intent that leaves key economics vague can turn into a fee-generating dispute later, which is one more reason we settle the material terms early. The best protection against an attorney's fees clause is a lease drafted so cleanly that no one has a reason to litigate it — and that is the work we do line by line before you sign.

Read alongside your default provisions, your guaranty, and your CAM audit rights, the attorney's fees clause tells you the real cost of being wrong. For a boutique operator with two or three locations across Orange County, Los Angeles, and the Inland Empire, that cost can be the difference between defending a claim and folding on the courthouse steps because the fee exposure is too large to risk.

Talk to us before you sign

We have negotiated attorney's fees clauses on retail deals from Costa Mesa to Riverside for three decades, and we read every one with the same question in mind: if this lease ends up in front of a judge, does the clause treat our tenant fairly. If you have a lease in front of you and want a plain-English read on the fees provision — and the default, guaranty, and CAM terms it connects to — call us at 949-796-7275 or email leasing@digitalre.com. We will tell you where the real exposure sits and what to change before you commit.