Nowadays everyone is looking for ways to save money—and co-ops, condos and HOAs are no exception. After all, it takes a great deal of financial support to run a community in accord with residents' standards, so every dollar counts. Funds are needed for repairs, staff salaries, vendor invoices, everyday maintenance and janitorial supplies, and to retain services from professionals such as accountants and attorneys.
From time to time, an association or co-op must consult with an attorney about things like lease negotiations, dispute settlements and contract reviews. It’s important to have a qualified attorney or law firm on your side but that doesn't mean a board-management team can't save money on those notoriously steep legal fees.
Terms of Engagement
How you can save on legal costs depends on the type of attorney or firm you're dealing with. “One type of lawyer is called a landlord-tenant attorney, and there are firms that specialize in that area,” says Stephen Beer, managing partner with Czarnowski & Beer LLP in Manhattan. “The certiorari attorney is hired to reduce the real estate taxes and fight the city’s valuation. They only get paid if they are successful, and generally take a percentage—15 to 25 percent—out of the cash they get for the building.”
Beer explains that as the name suggests, 'general counsel' attorneys handle general matters. “They charge by the month, and some items are included, such as board operations and unit owner issues, while others are outside of that base contract,” he says. “I’ve seen them run up fees, and if the co-op or condo doesn't have adequate operating reserve funds, they have to find ways to pay for these fees. Typically, they will level an assessments to cover the cost.”
Attorneys can be set up on a monthly or annual retainer, which is a flat fee that can cover services like reading contracts, making telephone calls, and attending board meetings. They can also be hired on an a-la-carte basis.
“Legal fees are an unavoidable cost of doing business in a co-op or condo but such expenses are controllable,” says Bruce A. Cholst, Esq., a partner with the law firm of Rosen Livingston & Cholst in Manhattan. “Though preventive action, proper utilization of attorneys and mitigation of costs once counsel has been retained, boards can, through their own vigilance, contain legal costs.”
Cholst explains that if a board is worried about running up hourly fees by asking basic questions, a monthly retainer offers peace of mind, and the ability to keep costs in check. “Anything outside of what is not covered by the retainer would be covered by the hourly rates,” he says.
The amount of the monthly retainer and the hourly rates depend on the law firm, the size and geographic area of the client building, and the nature of its legal issues. “A minimum of $2,500 a month is certainly not unreasonable—but that estimate is probably low for many firms, depending upon the amount of work needed,” explains David Reischer, Esq., a Manhattan-based attorney and founder of LegalAdvice.com. “If it's simple representation for the board at meetings, minutes and elections procedures, enforcement of house rules, maintenance fee disputes and simple things like that, then $2,500 per month is really the minimum amount.”
Lisa Breier Urban, a supervising attorney with the law firm of Kossoff PLLC in Manhattan says a monthly retainer can be usually be negotiated depending on the needs of the board and the services required. “For example, if there are ongoing services that are required in a specific area, then a monthly retainer is a good option to negotiate, keeping in mind that anything outside or above would be billed hourly,” she says. “If there are no issues, and the board likely won’t need to contact counsel, a more practical solution might be to budget a sum of money each year—say $5,000 to $10,000—just to be on the safe side.”
According to Cholst, when a firm is engaged on monthly retainer, a very precisely worded letter defines exactly what services are covered under the retainer, with two major exclusions: transactions and litigations. “You can’t tell how much time would be involved in a litigation,” he says. “As a practical matter, if a board member asks me a question, I’ll let them know it isn’t covered by retainer. If they want to go on with it, they do, but they know they will get charged for it.”
Nip it in the Bud
If a building is perpetually embroiled in litigation, its bottom line will inevitably suffer. “If a building has continuing legal issues...forming a legal committee that reports to the board to deal with matters in house” can be helpful, says Urban. “Also, it helps to make a long-term plan for addressing and dealing with legal issues that arise before they end up in litigation.” That might mean some diplomacy and conflict-resolution work on the part of a board member or manager, or bringing in a professional mediator to sit down with disputing parties and work out a detente between them.
Once a problem escalates into issues that are more serious and complex, fees will increase though it's nearly impossible to estimate the final price tag on any given legal dispute. According to Reischer, “Everything always depends upon the scope of the representation.”
As Urban mentions, speaking very generally, the average total legal fees for the average community without any litigation is roughly $10,000 per year. Naturally, a larger building or a building with more problems will spend more—sometimes a lot more. Cholst says he has seen attorney bills well into the six figures for litigation cases. “Mostly it’s for what I like to call ‘vanity litigation,’ where the bill just runs amuck. In order to fight and win the point, people lose all perspective on what it's costing. For example, two neighbors were fighting over a 36 square-foot vestibule. They insisted they couldn’t get along with each other, and we ended up with a three-week trial, 10 depositions and an appeal for two consecutive years. The building saw really high legal fees.”
Reischer says that deciding to rein in spiraling legal fees is the first positive step that an association can take to improve their bottom line. “The board must have the resolve to keep the condo or co-op profitable,” says Reischer. “Essentially this is about priorities and making tough decisions. There are creative ways to structure agreements, though again—the ability to negotiate a reduction in fees always depends upon the scope of the representation that is needed.”
Saving money on legal costs doesn’t start with high-level, hardball negotiations with a building's legal counsel. It starts with a detailed analysis of their bill. “Look at the itemized bills and see what was done,” says Martin Kera, an attorney and manager with Bren Management Corporation in Manhattan. “If you had [your counsel] write a three-page complaint, and they billed you for 12 hours, why did it take so long? The board should look at the bills and monitor them. Too often, nobody on the board is familiar with the process.” Also, consider whether your attorney needs to attend each and every meeting. Instead, can you forward them a copy of the meeting minutes, or just have them on the phone for a quick conference call?
Once the bill is reviewed, the next step is an open, honest conversation with the legal team. “Everyone wants to save money,” says Urban, “and there’s nothing wrong with that. I would discuss options that the client has and ways to save money on fees under the appropriate circumstances.”
Cholst says that he respects the board that is upfront about wanting to save. “It puts me on my guard that they are going to be watching me,” says Cholst. “I'll tell them if something can’t be done without incurring fees. And if they're concerned about money, they should also consider settlement rather than litigation.”
Kera advises all buildings to address any residential complaints immediately to prevent any potential litigation. “For example, if there is a leak, someone may not think about taking care of it if it’s not leaking in their apartment, but once the leak goes into another unit and litigation starts, there’s not much you can do,” he says.
As an accountant, Beer says that he often gets asked how associations can cut fees. “Everyone is trying to watch their money, especially since the economy has shifted. It’s more common now than five years ago to have a conversation about that with your professional. Also, do a periodic evaluation of your professionals' performances and get proposals from other firms, so you know what you’re paying” relative to current market rates.
Beer also says that most property management companies come with a legal expert on staff, so boards can often tap into that resource before going to an outside attorney. “Make sure you have insurance too, because your insurance company will often cover you for claims and bring in the attorney to go against the other company. For example, if someone slips and falls on your property, the insurers would handle the claim and pay the attorney.”
While the pros advise boards and managers to be judicious and try to resolve conflicts in-house before calling in the legal eagles for every situation that arises in their buildings, they also caution against waiting too long to call for advice if a dispute or complaint seems to be veering out of hand. Another definite no-no is signing any vendor or contractor agreements without having an attorney review them first. You don’t want to be legally bound to a contract whose terms are not favorable to your community—extricating yourself can cost far more than the fee you would’ve paid the attorney in the first place.
Ultimately, saving money on legal costs is very much like saving on anything else your building needs; you want to get the best value for your dollar while still providing reliable, adequate service to your building community. A proactive, critical assessment of both your bill and your community's expectations, followed by a candid, respectful conversation with your legal representation can not only save you money, but can improve relationships and streamline operations overall.
Lisa Iannucci is a freelance writer and a frequent contributor to The Cooperator.