Tenants in two New Jersey apartment complexes will get a chance to show that they were illegally charged extra in rent, allegedly to cover the landlord's attorney fees in eviction cases.
The state Supreme Court ruled Monday that the tenants' suits were improperly dismissed for failure to state claims for consumer fraud or negligent misrepresentation.
The tenants — residents of The Willows in Barrington and Colonial Apartments in Cherry Hill — are challenging a fee provision that charges a blanket $400 to tenants to pay for services of the landlord's in-house lawyer in eviction actions, or $200 if they pay their arrears before the court date.
Landlord Morgan Properties says the money goes to its in-house counsel, Rosemary Spohn. But the plaintiffs allege that Morgan filed at least 200 eviction actions a month in Camden County alone, meaning that it takes in between $480,000 and $960,000 a year.
The trial judge found a preset $400 legal fee generally reasonable, perhaps even modest. But the Appellate Division reversed, finding that in view of the ethical prohibition against sharing fees with nonlawyers, "it may be impermissible for the nonattorney defendants … to receive as attorney's fees an amount greater than their cost of legal services."
Justice Helen Hoens, writing for the unanimous Supreme Court in Green v. Morgan Properties, said the leases amount to contracts of adhesion.
"[T]here is no basis in the record to conclude, at this preliminary juncture, that plaintiffs negotiated, or had the opportunity to negotiate, about the amounts included as attorneys' fees," she said, adding the owner will have the burden of proving the fees are reasonable.
"This is a boon for tenants' rights," says the plaintiffs' lawyer, Woodbury solo Lewis Adler. "The court recognized that tenants are faced with contracts of adhesion all the time."
But lawyers who represent landlords are chary of the ruling. "There has always been a fixed fee that put some certainty in the relationship" between the landlord and the tenant, says Charles Gormally, who represented amicus New Jersey Apartment Association. "The court has now put a cloud on that."
Gormally, of Roseland's Brach Eichler, says that in the wake of the ruling, he will tell landlords to instead include language in their leases that say that if they are successful in court, they will petition for reasonable attorney fees, which could range above what landlords charge now.
"The decision really does put a cloud on the whole process of eviction, which is supposed to be a simple and expeditious process," says Rutherford solo Jonathan Mehl, who represents landlords in landlord-tenant cases.
"There's a chance that courts could get clogged with consumer fraud cases," he says. "It gives a warning to landlords that they should put in big bold letters at the top of the lease that the tenant should have the lease reviewed by an attorney before signing."
The court did agree with the dismissal of claims against Spohn for improper fee shifting. Hoens found no evidence that Spohn participated in the drafting of the leases or in determining the amount tenants were charged.
Adler says he can accept that portion of the decision. "The heart of the lawsuit is still alive," he says.
The owner's attorney, Stephen Orlofsky, of the Princeton office of Blank Rome, declines to comment.