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. The problem is two-fold: first off, you don’t want to compromise your relationship with your attorney or secondly, sustain risk high costs resulting from negligence, misinterpretation of documents, or other oversights.
Bruce Cholst, a partner with the Manhattan-based law firm of Rosen Livingston & Cholst LLP, says that every co-op and condo needs a law firm to help them navigate everyday legal issues such as contracts, sublets, and collection actions, as well as less-common ones like full-blown lawsuits.
Paying By the Hour
“The vanilla standard in this field is the hourly rate concept,” Cholst says. “Sometimes we will offer a flat fee on certain projects where we can gauge the amount of time based on our experiences and we’ll take the risk.”
The truth is even if there’s no big lawsuit to straighten out, legal fees can really add up for a building.
“The financial pressure is on everyone at this stage and I believe that attorneys understand that the building cannot continue to pay for services they are not fully utilizing,” says Adam Berenson, vice president and partner of Manhattan’s Dermer Management. “We generally recommend a building commit to a building attorney and use them almost exclusively; there is of course special instances when you would make an exception to this. This generally keeps everyone happy.”
One way the management company helps save its co-ops money on legal fees concerns documents, providing paperwork that could apply to just about any building without a lawyer’s involvement.
“We regularly review our standard documents to ensure they are keeping up with the latest changes in regulations and recommend boards adopt them, rather that recreate every document,” Berenson says. “They of course can make minimal changes as appropriate for their property.”
Understand that the governing documents and the board’s powers are vital for saving money on legal bills.
“There are always limits and checks and balances on what a board can and can’t do,” Cholst says. “It keeps you honest and ensures you don’t do something illegal, necessitating the need for an attorney in most instances.”
Another way that a board can reduce its legal costs is by taking steps to insure that communications with its attorney are handled efficiently and that is not accomplished by encouraging each and every board member to communicate with the attorney.
Using a Liaison
“We would strongly recommend that a co-op/condo board designate only one (or at most two) member of the board to act as the ‘liaison’ with the board’s attorney,” says Stanley M. Kaufman, a partner with the Manhattan law firm of Kaufman Friedman Plotnicki & Grun, LLP. “A good managing agent often can also be designated to perform this role. Too frequently we find that some boards generate unnecessary legal fees by allowing any and all of its members to communicate with counsel with respect to a particular matter.”
This also frequently results in the lawyer being copied in on lengthy intra-board e-mail strings involving matters that do not require the lawyer’s involvement.
Another way to save is by maximizing its use of the managing agent. Before engaging the law firm to prepare and send demand letters to shareholders/unit owners for monetary and other defaults, a written demand letter should be sent out by the managing agent. In the case of a shareholder/unit owner default, the engagement of counsel should be the last resort.
“Virtually all of our co-op/condo board clients pay for legal services on a time basis,” Kaufman says. “There are certain boards that routinely seek legal counsel for all matters, including service contracts and repair and constructions agreements, and some that do not. Also, not every co-op or condominium that we represent will ask us to review their annual meeting notices or even to attend their annual meetings.”
All co-ops and condos are different and the legal work required will vary depending on a number of factors according to Linda Plotnicki, who also is a partner with Kaufman Friedman Plotnicki & Grun.
A Common Fee Structure
“For a midsized building without any major legal issues, litigations, refinancing, leasing matters or major construction projects, an approximate legal fee range would be $7,500 -$10,000,” Plotnicki says. “Even with no major issues, some buildings have many shareholders or unit owners who default in paying monthly charges, and some buildings have none. So the legal fees to be incurred by similarly-sized buildings can still be very variable.”
For a 70-120-unit building, Cholst guesstimates the average legal bills to be around $10,000 to $12,000. One way to keep that down, he says, is by going to mediation instead of litigation for some issues, which could save thousands in legal fees. Considering that 80 percent of lawsuits reach some sort of agreement anyway, this makes a great deal of sense.
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.
“What the retainer is designed to do is to let the client fire away the routine questions they would otherwise be afraid to ask for fear of triggering the hourly fees,” Cholst says. “It offers unlimited access for day-to-day questions and issues, 24/7. That allows a client to gauge our expertise on routine matters.”
He cites an example of a highly-contested board election, where under the rules of the retainer, an attorney is required to attend the annual meeting and deal with all of the issues involved. This could require a big time commitment if the election is a mess, but it’s all covered with the retainer.
When Dermer Management takes over a new co-op, often it finds that the building has legal counsel on retainer. This provides the co-op the opportunity to call the lawyer to get advice on various matters without getting an hourly charge. However, this does not cover all work they will do for the building.
“Simply put, we use our best efforts to manage our buildings on a daily basis without the need for constant legal advice and therefore have not seen the need for monthly retainers,” says Dan Dermer, president of Dermer Management. “This being said, we are not attorneys and we will turn to them when we need them and our clients will pay for their services on an hourly basis. We find this to be a better route over the long haul.”
Even though an attorney has the right to bill their hourly rate for each interaction, Dermer still expects that they can ask for basic advice without being billed for every single interaction, as long as they don’t take advantage of it.
Review Your Bills
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 should review the bills to make sure that the time spent appears to be reasonable.
For example, the board should not have to pay for (a) duplicative 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.
A co-op or condominium does not have to have serious legal issues to sort out for it to incur significant legal fees. The refinancing of a cooperative’s mortgage, the negotiation of a lease for commercial space or a garage, a contentious election or a major construction project can all result in significant legal fees.
“Of course, fees for litigation can quickly escalate, depending upon the particular matter and circumstances,” Kaufman says. “It would not be uncommon for fees in a significant litigation to exceed $25,000 or more in a given year.”
In one prior instance involving a very large co-op client, the firm worked out an arrangement with the client in which it charged a flat monthly fee for routine general work, but the retainer agreement specifically excluded litigation and other major projects such as mortgage refinance transactions.
“This arrangement worked well and equitably over a number of years for both our firm and our client,” Kaufman says. “In some months, our bill would have been higher had we been billing on an hourly basis, and in other months our bill would have been lower. Ultimately, this co-op board and its management staff became quite efficient at handling many issues and the co-op was able to reduce its need for law firm assistance, at which time the board wisely determined that the monthly flat fee arrangement was no longer a good deal for the co-op.”
There are various things that reputable, responsible attorneys should do to keep costs down for their co-op/condo clients. First, if the attorney is asked to perform a task that can just as easily, or more appropriately, be performed by a board member or the managing agent, the attorney should so advise the client.
“If the attorney is asked to obtain information that is readily available to a lay person (such as information that can be obtained on websites), the attorney should let the client know that,” Plotnicki says. “If the attorney is asked to commence litigation, whether or not the client asks, the attorney should give the client his or her best assessment of the likelihood of success and the potential cost. Perhaps most importantly, if the client requests that the attorney perform services that the attorney believes are wasteful, unnecessary, improper, unlikely to achieve a successful result, or likely to result in attorneys’ fees or other expenses that the client may not have anticipated, the attorney clearly and firmly should express his or her position in this regard.”
In other words, an attorney will be doing his/her client a huge disservice by simply being a “yes man” or by telling the client what the attorney believes what the client wants to hear.
Another great tip Cholst offers is when you invite an attorney to a board meeting, put him or her on the agenda first so you aren’t billed for the entire time of the meeting. Also, only invite the lawyer if issues are expected, don’t do it just for show. A board needs to be smart and not run up legal fees on its own.
“I can’t tell you how many times a board has used me as a shrink, and I make a very expensive shrink,” Cholst says. “You need to use an attorney for legal advice and not for hand holding or staging.”
Keith Loria is a freelance writer and a frequent contributor to The Cooperator.