I’m new to a co-op board, and hiring a lawyer seems like a minefield. How do we know if our attorney is overcharging?
There’s no magic formula for figuring out what an attorney should be charging. The things a board might hire an attorney for, and what he or she might charge, are as varied as the day is long. But there are some rules of thumb.
Flat fee vs. hourly rate
First off is figuring out whether you should be paying a flat fee or an hourly rate.
“Beware lawyers promising flat fees for complex jobs,” says Steven Wagner, a co-op and condo attorney with Wagner Berkow LLP and a longtime board member of his own 420-unit Manhattan co-op. For example, an entire lawsuit “cannot be done on a flat fee because there are too many variables from an attorney’s point of view.”
That’s not to say that some firms won’t offer—Wagner says he’s heard of firms taking a fee in the tens of thousands of dollars for complex lawsuits that would presumably require hundreds of hours to see through, then turning around and urging a settlement, making what seemed like a bargain into something of a shakedown.
"Flat fees make sense for very common, one-off legal needs, like rent demand letters, or initial filings in housing court or condo lien foreclosure cases, which apart from a few variables are basically uniform," says Wagner. Some firms also offer lawyers to appear in housing court for a flat fee, but Wagner cautions against these arrangements, saying that attorneys who rely on this type of revenue “usually have several cases on [the court calendar] every day. It’s likely to be high volume. The level of attention that you get may not be the same as having an attorney with just one case who is intimately familiar with all of the details.”
He adds, "Attorneys who do many cases will sometimes check in and disappear for three hours. You do not want to be sitting there if the case is called without your attorney.”
There may be situations where it makes sense to pay for the high-volume, flat-fee lawyer but you should go in knowing, that “it’s a different service,” Wagner says. Also, an unprepared lawyer may simply adjourn the hearing, postponing the resolution of the issue, and costing you more in the long run.
Agreeing on a budget
When paying by the hour, there are ways to safeguard against runaway fees.
“It’s a good idea if you’re going into something that’s complex to ask for a budget, and possibly even a memorandum on the facts and the legal issue,” Wagner says. “It may cost some money up front” to get a memorandum on the law and an analysis of the case, but having it will allow you to follow along as the case progresses. “You’ll have a much better idea of what to expect,” he says.
Also, it may be possible to work out a budget cap with your lawyer. Wagner says that when he’s budgeting, he takes pains to avoid over-promising. Explicit detail about what work is included in a budget helps avoid any misunderstanding.
Getting a lawyer on retainer
For new or unsophisticated co-op boards, Wagner says monthly retainer agreements aren’t a bad idea.
"Monthly retainers typically exclude litigation, meaning the monthly cost won’t cover your lawyer jumping in to defend the board against a lawsuit or head to housing court without extra compensation," says Wagner. Rather, the retainer is a way for the board to get answers on routine legal matters on demand, with a set number of hours covered each month. You do not want to feel like the clock is ticking every time you call the lawyer, especially if a new board is just getting established.
Wagner adds, "The retainer agreement should spell out what is covered and what’s not, and could include a section on what the rates would be if the lawyer were to take on certain types of work beyond what the retainer covers."
Ask for detailed billing records
As the board-lawyer relationship progresses, it’s a good idea to keep an eye on what work is being done. Wagner favors a detailed billing format wherein he details down to the tenth of an hour who made what phone call, or worked on which motion.
“Asking for this level of detail, and scrutinizing these kinds of detailed bills, is a way to drill down and see what lawyers are spending their billable hours doing for you and if, for example, a firm is charging for an associate to sit in on a meeting for no apparent reason,” says Wagner.
Hidden ways to save
Being overcharged isn’t the only way boards end up spending money that they shouldn’t.
One way to potentially save money that boards sometimes overlook is to call the insurance company before dialing up a lawyer when the board is being sued. “Some boards don’t file” insurance claims, “because they’re afraid that doing so will increase rates for coverage,” Wagner says. “That may or may not be true, but I’m on the side of doing so, because not doing so could give the insurance company grounds for deciding not to” step in.
On the other hand, if a matter is covered under your building’s insurance plan, the insurance company can take over, relieving the board of the burden of figuring out a legal defense or paying the legal fees for the litigation. “Some insurance policies allow board’s to use their own attorneys even if the insurances pays the fees,” Wagner says.
Also, certain types of work, such as tax certiorari work, in which lawyers challenge the assessed value of a building, are done on contingency, meaning the attorneys only get paid if they prevail.
The big question
As important as it is to get a budget for a complex lawsuit and scrutinize legal bills once it’s underway, there’s a more fundamental question to think about when facing some form of strife with a building resident. That is whether it makes sense to get involved in litigation in the first place.
“If the amount [of money] involved is small, they ought to think twice,” Wagner says.
There may be situations, such as a co-op owner running an Airbnb business or an apartment that’s used for criminal activity, where the danger outweighs the cost that can be recouped. Also, a co-op’s proprietary leases or a condo’s bylaws may compel the loser of a case to pay the board’s attorneys’ fees, so it’s important to know what the bylaws or leases say about this. But the surest way to avoid spending large amounts on lawyers is to not fight your battles in court.
“I always recommend to my clients only get involved in litigation when they’re going to make a lot of money or they have no choice,” Wagner says. “If the matter can be solved amicably, they ought to go that route.”
New York City real estate attorney Steven Wagner is a founding partner of Wagner | Berkow with more than 30 years of experience representing numerous co-ops, condos, and individual owners and shareholders. To submit a question for this column, click here. To ask about a legal consultation, send an email or call 646-791-2083.