The most common arrangements for retaining attorneys are hourly, retainer, task based, contingent fee or mixed-contingent. An attorney’s ‘out-of-pocket’ expenses must be paid in addition to the attorney’s fee. These expenses can be minimal or very large. Examples of large expenses include expert fees, transcript fees and/or copying fees. The client must determine whether the attorney will advance these expenses or require the client to pay as they go. Most attorneys will require the client to pay as they go. This method not only avoids having the attorney advance the funds, it makes the client keenly aware of the expenses.

In an hourly fee arrangement the attorney is paid at an hourly rate for the time spent working on the case. The client should be provided with detailed bills showing how the attorney spent the time. Advantages of an hourly fee arrangement include: the client determines the level of effort invested and, if a case is resolved quickly, the client may pay a much lower attorney fee than the client would have been paid if the Attorney had to be paid thirty percent or more of the recovery (as would happen with a contingent fee arrangement). The disadvantage of an hourly fee arrangement is that budgeting may be more difficult and the client bears the entire risk of losing the case. If the case is lost, the client gets no recovery and must still pay the attorney fees and disbursements.

Retainer agreements provide an annual fee for a group of specified services. Retainer agreements provide ease in budgeting. With a retainer agreement, the attorney assumes the risk that the effort demanded by the Association will be greater than the retainer quoted. Because of this almost open ended risk; retainer agreements may include a ‘risk premium’. This would be a cushion between what the attorney thinks it will actually cost in terms of time to complete the tasks versus a somewhat higher retainer bid figure. Association’s that throw off other legal work (i.e. litigation, collections etc.) may be able to negotiate a lower retainer without a risk premium if the other legal work is given to the retainer attorney. Association’s seeking to avoid paying a ‘risk premium’ and mature associations who wish to closely direct attorney effort generally choose an hourly fee agreement.

With a task based arrangement, the attorney has a fixed fee schedule for set tasks or a case. For example, a certain charge for preparation of the complaint, another charge for preparation of the summons etc. This arrangement is similar to an hourly arrangement but allows the client to monitor and budget expenditures on a per task basis. Where the hourly rate structure places the risk of attorney inefficiency on the client, the fixed fee structure places inefficiency risk on the attorney.

In a contingent arrangement, the attorney is not paid unless the attorney obtains a recovery. The advantage of this is that the client does not have to pay fees up front, other than expenses. The client avoids ‘throwing good money after bad’ and the risk of losing the case is shared with the attorney. Disadvantages of this type of arrangement are that the attorney may receive a wind fall – if a case settles and is paid just after being turned over to the attorney, the attorney is still entitled to the agreed upon percentage of the recovery. Further, if the attorney does not see a prospect of significant recovery, the attorney may not pursue the matter as aggressively as the client may like.

With a hybrid or mixed-contingency fee structure (used in litigation), the attorney may work at a significantly reduced hourly rate in exchange for the chance of recovering a percentage of any award. This arrangement distributes the risk of loss between the client and the attorney and provides incentive for efficiency and for a positive result between the client and the attorney.

Regardless of the fee relationship, in the end, the client-attorney relationship should be viewed as a continuing one that may have to be modified over the course of the representation. This will depend on various variables such as the amount in controversy, how complicated or routine the work is and how much money the client has to spend on attorney fees.

In the past, many Associations have retained counsel on an annual ‘retainer’ basis because of ease in budgeting. However, because of the substantial demands of today’s community associations, many law firms and associations are moving from retainer agreements to hourly or task based agreements.

We are regularly asked how Associations can save money on attorney fees.  Some argue: “go with an hourly agreement, that way the Association can control the attorney’s work.”  Others might argue: “flat-fee retainer agreements are best; budgeting will be easier.”  Still others might say: “a contingent fee arrangement is best, that way the Association won’t have to pay unless the attorney wins.”

While these answers and others may be right in certain circumstances, the real answer, sure to save attorney fees in virtually every Association, is: “Hire strong management, pay fair management fees and use management personnel properly.”

Seems like a simple answer but, counterintuitively, at a time when few manager resumes are circulating, management fee proposals are bent on a race to the bottom.  I do not know what is driving this. Board demands?  Desire for market share?  Ability to sell ancillary services?  Increased technology usage?  A combination of these factors?  Regardless, isn’t it a matter of pay management today or pay way more in legal tomorrow?  Worse, isn’t it a matter of pay management today or pay way more in legal, audit, engineering, contractors etc. tomorrow?

Experienced, trained and dedicated managers are effective.  Among many other things, they help with risk management and insurance; specifications, bidding and moving projects forward, managing the budget, collecting delinquent fees, managing personnel, maintaining books and records, resolving disputes, etc., etc.

Failure to properly deal with risk management leads to more insurance claims.  Failure to properly deal with insurance claims means coverage denial.  Failure to properly deal with specifications, bidding and project management leads to flawed projects, cost-overruns and lawsuits.  Failure to properly budget and collect Association fees leads to lack of reserves, special assessments, large increases, borrowing and collection lawsuits.  Failure to properly manage human resources leads to unnecessary costs, work not getting done and lawsuits.  Failure to properly maintain books and records leads to an inability to manage, member suspicion and lawsuits.  Failure to promptly address disputes leads to lawsuits.

We do not own a management company, but we work with most of them.  Associations should be keenly aware that the management fee supports the manager and much more.  When considering a management company proposal, the cost should be one selection factor but not the primary factor.  We perform great legal work and appreciate Associations paying our legal fees, but we encourage Associations to hire strong management, pay fair management fees and use management personnel properly.