Attorney Fee Clause: Everything You Need to Know
An attorney fee clause breaks the default fee rule and identifies which party must pay the other party’s or parties’ lawyers’ fees and other costs and expenses.3 min read
2. What Constitutes Attorneys’ Fees
3. Mutual vs. One-Sided
An attorney fee clause breaks the default fee rule and identifies which party must pay the other party’s (or parties’) lawyers’ fees and other costs and expenses.
When two or more parties enter into a contract, they may designate, within the legal document, who pays for legal costs, like attorneys’ fees, if a lawsuit is brought. The default rule requires each party to pay their own attorneys’ fees and other expenses, even if they win the case. However, a contract can override this default rule and require the losing party to pay for the winning side’s fees. This is called a mutual provision. Or, a contract can specify only one party that can recover fees if they win. This is called a one-sided provision.
An attorney fee clause has three parts:
- The condition a. Defines which events give rise to the right to recover fees b. Can be narrow or broad
- The benefactor a. Typically, it is the prevailing party who is entitled to recover their attorneys’ fees and costs
- The scope and what is recoverable a. “reasonable attorneys’ fees” b. “costs and expenses” The clause can limit the scope of the right to recover, specifying that only one of the parties can recover fees if they “win."
“In the event of a claim being brought to enforce rights under this contract, the prevailing party shall be entitled to recover its costs and expenses, including but not limited to reasonable attorneys’ fees, incurred in the event of breach of this contract.”
The prevailing party is the party that is awarded the greater relief in the resolution of a dispute. However, if the clause limits the scope of the right to only one of the parties, the clause must explicitly say so and name the party that would be allowed to take advantage of the attorneys' fee clause.
Award of attorneys' fees can be included in a separate provision, but it can also be found as a sub-provision in a fees clause. Some jurisdictions do not include attorneys' fees in their definition of “costs and expenses,” so you may have to include both phrases in your clause, or both clauses, in order to ensure inclusion of the attorneys’ fees.
A contract can contain a broad or narrow attorneys' fees clause. A narrow clause will lead to collecting attorneys' fees if the lawsuit claim is directly related to the contract rights trying to be enforced ONLY. A broad clause will allow the collection of attorneys' fees for BOTH the enforcement of contract rights, but ALSO for any claim arising out of the contact: torts or civil claims.
You should ask your lawyer to draft the attorneys’ fees clause narrowly in order to avoid collection of fees in a tort claim. Use phrases like
- in an action to enforce the contract or
- in the event of breach of the contract or
- in the event of default under the contract
Avoid phrases such as “arising out of” or “related to.” The phrases are broad clauses that will allow collection of fees in non-contract claims.
However, the parties have the right to contract to (decide) what claims the attorneys' fees clause can apply to. If the parties want the clause to cover civil and/or tort claims, they can draft a broad clause. This will include any claim related to their parties’ relationship even if unrelated to the contract itself.
What Constitutes Attorneys’ Fees
- Costs of paying the court reporter to transcribe depositions
- Costs for interviews
- Costs for in-court testimony
- Filing fees
- Costs and Fees related to serving the defendant or filing paperwork with the court
- Paying the jurors (if jury)
- Costs of photocopying court papers and exhibits
Mutual vs. One-Sided
A mutual provision is the fairer option for a fee clause. A "one-way provision" allows only one of the parties to receive attorneys' fees. More often than not, it is the party with the more sophisticated or experienced bargaining position. One-way provisions are unfair in that only one party will be required to pay in the event of a loss.
Some states do not allow one-way attorneys' fees contract provisions and read them as mutual provision provisions.
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