By Terry A. Kessler, Esq.

Most governing documents allow for an association to recover “reasonable” attorneys’ fees when forced to take action to collect delinquent assessments due from unit owners. But who determines what is “reasonable” and what elements factor into this equation?

When it is necessary for an association to pursue a delinquent unit owner in court, normally the judge will make a determination as to the reasonableness of attorneys’ fees. As to what factors the judge must consider when determining reasonableness, a recent unpublished Appellate Division decision is instructive.

In Barry Associates, LLC v. 300 Allenhurst, LLC, the contract between Barry Associates, LLC (“Barry”), a commercial real estate broker, and 300 Allenhurst, LLC, a commercial property owner, provided that, should litigation be necessary to resolve any dispute, the successful party agreed to pay the losing party’s attorneys’ fees. After such a dispute arose, Barry was forced to sue to collect its commission. The judge awarded Barry the full commission, but limited its award of attorneys’ fees to 25% of the earned commission, even though the attorneys’ fees Barry was forced to expended in the case were substantially higher than the amount of the award. On appeal, the court reversed the reduced award and remanded the case back to the trial court judge to reconsider the award of attorneys’ fees based on something other than a random percentage that had no relationship to the work performed in order to obtain the judgment.

A similar scenario often occurs in condominium and HOA collection actions when an association is forced to bring an action to collect unpaid assessments; even though the governing documents provide that the association is entitled to “reasonable” attorneys’ fees and costs, a judge will often times only award a portion of the legal fees incurred despite the fact that, as in this case, the legal fees will exceed the balance due for the unpaid common assessments. This case is instructive in that it reiterates that the trial judge must consider more than just the amount of the debt or other amounts trying to be collected. The court must also consider whether the party’s efforts, and fees expended, were a necessary and important factor in obtaining the relief.

The Appellate Division’s decision in Barry Associates, LLC v. 300 Allenhurst, LLC, decided November 23, 2011, can be found here.

If you have a question about reasonable attorneys fees, collections or any other issue concerning your community association, please contact one of our Community Associations attorneys.