Q&A: An HOA needs an attorney retainer agreement, but a good one requires negotiation

Question: Every year, the board automatically renews the association attorney’s retainer agreement and deposit. Without reading it the directors sign and send him a check for $60,000.

This year, I spoke up and told my fellow board members that we should not make the deposit and not sign the agreement until we have more information and fully understand the terms of engagement. For example, the attorney never tells us if he has malpractice insurance.

Further, I question this attorney’s and his firm’s ethics, their invoices, their interference with our association’s business and their failure to provide the contracted-for service. I want to interview other attorneys but don’t know what to look for in attorney agreements.

Can we negotiate better costs and terms while not compromising on the quality of services? Do we even need a retainer agreement?

Answer: A signed written retainer agreement is a good thing to have — for both parties. But as fiduciaries, the board has a duty to read the agreement and research its terms before committing its signature. While you may not be legally required to have a written retainer agreement with your attorney or even a written contract with any other vendor, enforcing the association’s rights is much more difficult without a memorialized agreement to fall back on.

Retainer agreements typically spell out the basic expectations of the contracting parties, such as fees and expenses, the purpose for representation and any required retainer deposit.

All legal fees and retainers are negotiable and boards have a duty to achieve the best possible agreement terms before committing signatures to paper. Although large upfront deposits were once commonplace, many qualified firms have relaxed their retainer requirements. To help clients budget for legal costs, some firms are even willing to offer flat rates for certain transactions.

Before committing to a new retainer agreement, compare and evaluate any changes from previous agreement versions. After reading the present agreement thoroughly, ask questions about any items you don’t understand. This cannot be emphasized enough because once signed, the presumption is that the board read and understands the retainer agreement. If the agreement is complicated, the board should engage independent counsel to review the agreement before signing.

If you decide to explore retaining new counsel, attorneys should be interviewed and vetted in the same manner boards consider other engagements and agreements. Go to the office. Visit the law firm, meet the attorney and the firm’s staff. Learn about their experience representing similar clients, then decide whether they are a good fit for your needs. If you don’t work well with counsel you are much less likely to receive the best representation possible.

Here are some additional tips whether you choose new counsel or stay with your existing one:

• Retainer agreements should be in plain language that you understand, spelling out terms and obligations clearly. Remember, successive board directors will have to understand the final agreement too.
• Pay attention to these agreement items: (1) description of the scope of services, (2) all applicable fees and costs, (3) insurance disclosures, (4) retainer deposit replenishment, (5) invoice frequency and detail, and (6) dispute resolution. Often missed are alternative plans in the event something unpredictable happens or the association is forced to litigate and go to trial.
• Minimize surprises. Ask if “this attorney will be handling your case or will another attorney in the firm be doing it?” When and how often can the firm decide to change its rates, and how much notice would be provided to the client?
• Get a sample invoice. This gives you an idea what to expect from the firm’s billing practices. Even with a retainer deposit, the firm should provide detailed monthly statements describing the work performed and how much it cost. Obtain the rates of all firm employees who will perform billable work.
• Understand the difference between billable and nonbillable hours. Ask if they charge for basic correspondence and questions, emails and phone calls. Do any special rates apply for travel or waiting times, and will overhead, research or mailing costs be charged separately?
• Get clarity on the agreement’s duration. Does this agreement expire? Reviewing and negotiating terms takes time and there is no reason to renew an agreement every year, especially if the rates aren’t scheduled to change.
• Request an affirmative disclosure in your agreement and on a yearly basis thereafter that the firm has attorney professional liability insurance. The State Bar of California’s Rules of Professional Conduct (3-410) essentially gives an attorney 30 days to inform a client of a lapse or termination in professional liability insurance. Without this disclosure, the presumption is that the association’s attorney has insurance.

Zachary Levine, a partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian, JD, P.O. Box 10490, Marina del Rey, CA 90295 ornoexit@mindspring.com