The board was unhappy with its attorney. Well, not exactly. The directors of the Upper West Side Manhattan co-op were unhappy with the lawyer’s fees. They didn’t dispute the time or hourly rate he was charging, they just didn’t like the amount they were paying.
“They thought the overall bill was too high,” recalls Steve Wagner, the attorney in question, a partner at Wagner Davis. “This building had run up a huge bill with a series of transactions and financing issues.”
So, even though the board president said she had liked working with Wagner and even though he had represented the property for nearly 25 years, the board switched to an attorney who offered the building a flat-rate retainer arrangement. The rationale was simple: with a flat rate, we will know what we’re paying each month.
With the economy tanking and belt-tightening being the phrase of the year, a few boards are beginning to explore an option that most lawyers did not often recommend: flat-rate retainer arrangements. On the face of it, a flat-rate retainer seems simplicity itself. The client is billed a flat monthly fee, whether or not the attorney’s hours result in a billing equal to that monthly fee or one that is greater than that monthly fee, according to David Berkey, a partner at Gallet Dreyer & Berkey. Some lawyers charge a flat monthly fee for basic work, such as answering letters and interpreting corporate documents but may charge more for litigation, mortgage refinancing, or work that is out of the ordinary.
The flat rate has been around a long time, but it is not popular with most attorneys – who do not push them – and no wonder: a flat rate usually means more work for less money (except in cases of litigation). For instance, Wagner recalls a lease negotiation with which he was involved under a flat-rate retainer deal: “As they were negotiating, they had a board member who was just not sophisticated at all and she just didn’t know what the hell she was doing. She would negotiate with two different companies at the same time and have me draft leases for both, which had been included in my retainer. So I did probably six or seven leases for them. It was just a disaster for me because I was getting $600 a month and they ran up a bill that probably was close to $100,000. So, I finally notified them, after almost all the leasing was done, ‘I can’t include this anymore.’”
“The trouble is you get the people who want the $500 retainer and they think it’s going to cover everything including private legal advice for every shareholder in the building,” adds James Samson, a partner at Samson Fink & Dubow. “And that cannot possibly be so, it just can’t happen. Or to put it another way, the guy who’s willing to sign that kind of agreement is somebody who’s not busy and why would you want a lawyer who’s not busy?”
Not surprisingly, a number of lawyers are quick to discuss these and other possible negatives of the flat-rate system. With such retainers, says Samson, “somebody’s going to be unhappy and somebody’s going to be a loser because the work is either going to be a lot more – making the attorney unhappy – or a lot less – making the board unhappy. If what they’re looking for is a reduction in legal fees, that should be addressed in the time charges or the number of times they call you. If what they’re looking for is the budgeting, well, it is not something that actually keeps the legal fees down by much, because you’re not going to get $10,000 worth of work for $5,000. Certainly not from a busy lawyer.”
Berkey warns that you could actually pay more, once exclusions from the arrangement are included. Others note that you may also end up paying for a lawyer when you don’t need him – although Warren Schreiber, board president at Bay Terrace Cooperative Section I, a 200-unit garden apartment complex in North Beach, Queens, says this hasn’t been a problem with his co-op’s flat-rate deal. “I can’t think of too many months where we haven’t referred some sort of an issue to our attorney, although I’m sure it happens. We look upon it as an insurance policy. Even if there was a month when we didn’t have to use our attorney’s services, our feeling was that it would more than be offset by months when we’re constantly going back and forth on different issues.”
In fact, Schreiber is one of those who has a flat rate and loves it. “I would say that there’s a very, very good chance that our legal fees could have been double what they are now if we hadn’t had the [flat-rate] retainer,” he notes. “And also, having an attorney on retainer means that we have somebody who is really familiar with our issues.”
There are other advantages. For one thing, it encourages clients to seek out assistance from their lawyer early on before litigation begins (and possibly forestalling it through early intervention by counsel). Under an hourly rate system, observes Geoffrey Mazel, a partner at Hankin & Mazel, who encourages the use of flat-rate retainers, “they don’t want to talk to me because I’m too expensive. If you’re paying $22 for brunch and it’s all you can eat, you don’t mind going up for seconds. In other words, they’ll use me in an effective way. The flat rate doesn’t include litigation or complex vendor contracts. It includes all the day-to-day stuff, the phone calls, e-mails, my day-to-day advice.”
Agrees Alan Kramer, board president of the 60-unit co-op in Manhattan at 17 West 67th Street: “The key advantage to me is that I feel very comfortable to be able to pick up the phone and ask any question and get our lawyer’s advice on issues. I don’t feel the meter’s running.”
Is it the wave of the future? There is much talk about flat-rate fees in the legal community (recent press reports have cited concerns by attorneys) and more co-ops and condos may find inspired to switch because of the freedom it gives them to use their attorneys as true partners rather than living embodiments of the phrase “time is money.” Certainly Wagner, burned by the loss of his long-time client, has taken note. Says he: “I’m seriously considering setting up a flat-rate retainer myself.”