October 29, 2009 (Original publish date) • By Dennis Beaver
Last week we answered questions submitted by Kingsburg readers who were about to purchase an office cleaning and maintenance business. At the urging of their wives, they asked You and the Law:
l Do we need a lawyer to be involved in negotiations before buying the business, or should we just wait until after things are rolling to see if any legal issues arise?
l Does it make sense to establish a “monthly retainer” relationship with a law firm?
The answer? “Yes, if you want to save money in the long run,” and came from business lawyer and author Andrew Karlen of White Plains, New York.
“Entrepreneurs who retain counsel after things are rolling; often realize their worst nightmares about legal fees. Satisfaction about money saved morphs into regret. Not knowing what they didn’t know, or being misinformed about what they thought they knew, become expensive and painful lessons. Legal fees for timely legal advice that can help avoid this scenario are a smart investment.”
Karlen was quick to add something which I have always maintained: “Having a local lawyer on a monthly retainer reduces legal expenses and increase profitability. By spending a little, you will save a lot and accomplish more with less stress.”
Lawyer on retainer = peace of mind
“A lawyer on retainer” means the client pays a fixed fee for an agreed-upon scope of services or number of hours. The client gains the ability to speak with the attorney when problems or questions arise or when in need of a “sounding board,” without the fear of receiving a bill “just for talking.”
Obviously, lawyers “sell” advice and their time. After a consultation, it can feel like you walked away with nothing — except a bill! See a doctor, and, at least you get a prescription. It is the “intangible” nature of what we do that makes it so difficult for a lot of people to feel comfortable paying “just to talk with someone.” This can keep you away from a lawyer at the worst possible moment.
“Let’s say you’re the business owner and a letter threatening suit has been received but you feel the claim has no merit. You reason that since you’re in the right, any expenditure on legal fees now would be a waste. These fears keep clients away from attorneys just when they need them the most,” Mr. Karlen points out.
“Two weeks later you are sued. Is there anything more humiliating than having to say to yourself, I’m a dummy! But with an attorney on retainer, the owner could have directed the letter to counsel and sought advice on how to handle the situation, likely avoiding a lawsuit.”
“With that kind of a relationship, there is no reason not to call your lawyer!”
Must be fair to everyone
The amount of a monthly retainer has to be fair to everyone, and there is no magic formula. Together, the client and attorney should agree upon the scope of the legal services the business will need. The retainer is based on the number of expected hours the attorney will devote to those services. Some are based on the attorney’s normal hourly rate while others are at a deeply discounted rate.
The client then pays the agreed-upon amount each month, regardless of the amount of time the attorney actually spends. To ensure fairness, the client and attorney should periodically review the number of hours actually used. Based on those reviews, the retainer can be adjusted up or down.
For someone going into business for the first time, there will probably be a frequent need to speak with an attorney. “You should budget at least a couple of hours a month,” Mr. Karlen advises.
It’s no bother
“I tell my retainer clients that they are never going to bother me, and encourage them to resolve any doubts in favor of calling. That includes both issues that are obviously legal as well as those where my experience, network of resources and, hopefully, common sense can be helpful. This is especially true with something that might not seem serious. It may not be, but let me know what’s going on. Just run it by me, and both of us will sleep better!”
“In appropriate situations I allow my clients to call me at home. I’d rather spend some time talking to a client in the evening or on a weekend, than have the client fret about it until I can be reached in the office,” the New York lawyer concluded.
To that I add one warning: be very skeptical of mass marketed “pre-paid” legal insurance offers. Most are a total waste of money.
Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.