In today’s economy, co-ops and condos are looking for ways to cut costs wherever they can, and many are turning to examining their legal bills. But the problem therein is two-fold: firstly, you don’t want to compromise your relationship with your attorney or secondly, risk high costs resulting from negligence, misinterpretation of documents, or other oversights.
Every association needs a law firm to help it navigate everyday legal issues such as contracts, sublets, and collection actions, as well as less-common ones like full-blown lawsuits. Some associations make the mistake of forgoing counsel in an attempt to save money. This costly mistake can lead to expensive litigation, ultimately putting an association and its budget in the hole.
“This is where the old warning of not being ‘penny wise and dollar foolish’ comes into play,” says Donna DiMaggio Berger, a shareholder and nationally-known community association lawyer with the law firm of Becker & Poliakoff with offices in Florida, New York, New Jersey, Washington, D.C. and Virginia. “There are certain things that a board should know absolutely require advance attorney involvement to create a safety net for the board if things go wrong. This list includes: signing a contract, terminating a contract, hiring an employee, firing an employee, making material alterations to the common areas, selling property, buying property, denying a tenant or a purchaser and borrowing money.”
Paying By the Hour vs. Retainers
“Billing arrangements vary depending on the nature of the work being performed,” Berger says. “Some types of work lend themselves to a flat fee arrangement while others do not. Most attorneys provide a variety of billing options for their clients depending on the services being performed.”
According to Steve Welhouse, a partner with The Sterling Law Office in Chicago, the vast majority of associations pay for legal aid by the hour, with the rate varying from firm to firm.
On the other hand, many firms offer a retainer, where for a set price each month, you get a series of defined services by the attorney. Anything above and beyond those services will be covered by the hourly rate.
“Within the last couple of years, given the state of the economy, more associations have been looking to hire attorneys on a monthly retainer in order to maximize benefit per cost, but I think that the jury is still out as to its effectiveness,” Welhouse says.
Welhouse believes that a board's or association's method of payment is dependent on how they or their management companies choose to interact with an attorney.
“Some of my clients will send me random emails, or make random calls fairly frequently during the course of a given month,” Welhouse explains. “For many of these, I won't charge, despite my normal rate, as the calls are very short, and I've an established a relationship with the client. I think that this is a real benefit to my clients, and, with that type of relationship, a monthly retainer scheme can potentially prove more beneficial. On the other hand, if associations know that they've got a very set amount of things that they're doing every month with their attorneys, maybe they are able to better judge what they are going to spend via an hourly rate.”
Making the Most of Counsel
There are ways to maximize the efficiency of the association-counsel relationship, which in turn, keeps unnecessary legal costs at bay. To cite but one example, by keeping tabs on all assessments, a property manager can help mitigate expenses.
“It's important that a property manager is diligent in regard to maintaining books and records, and that the board educates itself about all legal processes that an association can be involved in, the most common being the collection of assessments,” observes Welhouse. “That way, there aren't a lot of excess communications with attorneys that will inflate costs.
“From the property management side, if they've got efficient record-keeping and can timely relay information to attorneys—such as private accounting documents—it will successfully reduce inefficiencies wherein the attorney has to circle back and ask for information multiple times. That type of egregious back-and-forth will only induce further costs while doing nothing to advance the association's legal affairs.”
Listen and Learn
Another tenet to legal savings is education, both through the study of the various legalities imposed upon associations and the mistakes and successes of prior boards.
“Frankly, there are certain things that an association just cannot avoid,” Welhouse says. “If an association is going to sue someone to correct a self-assessment, it's going to spend money on an attorney. But I believe that if a board can properly educate itself, it can save money on legal costs just by knowing precisely what it needs to do, and especially what it doesn't need to do. Perhaps it's best for boards to become knowledgeable at the onset of its election, and garner any info that it can from past boards and property managers.”
Welhouse recommends that a board keeps its attorney's expenditures and involvement to a minimum. Utilizing one specific board member as the point of contact between board and attorney is crucial, rather than having various members reaching out to an attorney at different times, thereby racking up costs. Open communication is paramount.
A board must also be able to recognize red flags that may come along with a client-attorney relationship.
At the end of the day, transparent communication with an attorney is the best way to minimize unnecessary expenses, according to Welhouse. Whenever possible, minimize an attorney's involvement at meetings; unless a specific legal statute needs to be explained in depth by a professional, an attorney's presence is probably unnecessary. Finally, associations should strive to be diligent and follow policy in regard to assessment collections. Despite the lackluster economy, drawing out these processes will only lead to more costs accrued.
Minor vs. Major Issues
Ebony Lucas, an attorney with The Property Law Group, LLC, based in Chicago, notes that the majority of associations' expenses are on more minor issues, as opposed to major legal concerns.
“I find that fewer associations encounter huge litigious matters, but rather smaller problems, like unpaid assessments or rules and regulations violations,” Lucas says. Given the lesser nature of these issues, Lucas' office offers condo associations a flat fee. This helps associations keep their costs down while staying aware of exactly to where their money is being allocated.
“We can usually tell associations upfront as to how much they are going to be paying,” Lucas continues. “Without encountering major legal issues, small-to-mid-sized co-ops may pay $6,000-$10,000 per year.”
Ask for Advice
Lucas finds that associations will often try to handle important issues—like drafting binding rules and regulations—internally, in lieu of retaining an attorney. More often than not, this leads to a charter of rules and regulations that is entirely unenforceable.
“I recently had a Department of Human Rights hearing that could have been entirely avoided had the board simply offered me their rules and regulations for review prior to their implementation,” Lucas explains. “But they had decided amongst themselves that they did not want to pay the extra expense.”
To avoid this type of time-consuming and financially-draining situation, associations must not be afraid to ask for help before making any decision that could have further legal ramifications down the line.
“That's how you establish a good relationship with your attorney,” concludes Lucas. “You communicate often in the earliest stages, so that when these issues come up, they can be resolved properly, as opposed to spending a lot of money on some type of litigation later that was, in hindsight, entirely unnecessary.”
Review Your Bills
It is vital for an association to screen all bills and look for any red flags. If a board is being billed by its law firm on an hourly or contingency basis, somebody who is familiar with the services that have been rendered (probably the assigned liaison) should review the bills to make sure the time spent appears to be reasonable.
“It is often difficult for directors, managers and lawyers to remember the specifics of each billable hour,” Berger says. “If you don't recognize the initials next to a billing entry, ask. If the billing entry is written in Morse code, ask for clearer billing entries in the future. The invoicing should tell an accurate story of what was done and by whom. Ideally, the retainer agreement should contain a schedule of fees and the manner in which billing is handled,” she adds.
There are a few undeniable red flags to look for. For example, the board should not have to pay for (a) duplicate services performed by more than one attorney for tasks that reasonably could have been performed by a single attorney; (b) unreasonably excessive time spent by young inexperienced attorneys perhaps attributable to a “learning curve;” and (c) additional time that the law firm may have spent to correct errors that it may have made. The reviewer of the bills also should make sure that the bills contain no mathematical or accounting errors, which sometimes happens.
Know the Limits of Frugality
Being cheap can cost you—especially in the courtroom—experts warn. Yes, hiring a junior attorney with a relatively low hourly rate is tempting, but it can cost associations in the long run—literally. It’s important to hire an attorney with expertise in your field of concern, otherwise, your bill will skyrocket to accommodate the extra time it takes the cheap, albeit less experienced attorney to spot the issue and research the matter, Berger says.
Berger also warns associations to look out for low legal quotes.
“Any lawyer who advises that a court battle is going to cost less than $10,000 minimum is probably not being realistic in his or her assessment,” she says. “Depending on the complexity of the case, experts needed and the ability or inability to settle the matter prior to trial, the costs can skyrocket.”
Supplying clients with needed knowledge and research is one of the most effective ways to optimize an attorney-client relationship. After all, dealing with clients that are ignorant of association law can be time consuming, frustrating and can lead to stagnancy.
“Very often our clients will tell us that they were going to call us with a question but found the answer addressed in one of the many free resources we offer,” Berger says. “I have been asked if that is upsetting and the answer is always a resounding, ‘No.’ The guidebooks and other resources were created with one goal in mind: to help association members.”
Mike Odenthal is an editorial assistant at The Chicagoland Cooperator. Freelance writers Keith Loria and Enjolie Esteve contributed to this article.