There is no standard or formula for measuring the appropriate legal fees that an Association might pay. It depends on what’s actually happening. So before you criticize the Board for its expenditures on legal fees, please take the time to find out what they are reserved for. Perhaps you expect to settle a multi-year tax appeal, for which the attorney gets a percentage. Or perhaps the Association was sued for an alleged unpaid bill, or discrimination, or to compel the Association to take some action. All of these need to be defended by the Association. Alternatively, you may find out that the Association is suing defaulting owners for common charges, and the owners are manipulating the system.(These fees may ultimately be collected in foreclosure, but that could take time.) Or perhaps the Association is pursuing a construction defect claim. Of course, it is also possible that you find out about a case that the Association should have disclosed to the owners long ago, and that a new Board needs to be elected to settle it. And remember that your fellow owners are spending their own money on a legal action as well as yours.
Spolzino Smith Buss & Jacobs LLP
733 Yonkers Avenue
Yonkers, NY 10704
There is no formula. And there cannot be because what an association spends on legal fees and costs is not dependent on its size, but rather its specific legal issues and matters. For example, a large Association might have little to no defaults in payment of assessments/dues and few other legal matters, whereas a small Association might have many issues related to payment defaults and enforcement of the Governing Documents. The fees for the latter would be much more than for the former.
What is more important (than Association size) to look at is whether the Association is wisely using its counsel, i.e., for things a management agent or volunteers cannot do and where there will be a reasonable return for the expenditure. However, Associations should also keep in mind that they may need to expend funds for legal fees to enforce Governing Documents that may not result in a financial return but are in fulfillment of the association’s required duties.
Sara A. Austin
Austin Law Firm LLC
226 E. Market St.
York, PA 17403
No, there is no rote formula that is used to determine the appropriate budget for legal expenses that is based on either an association’s size or its budget. There are many factors that can influence the expected legal expense. For instance, is the association involved in litigation that is being handled by the association’s attorney – as opposed to litigation that is appointed by an insurance carrier for the association? This, alone, can dramatically impact the amount of the projected legal expense. Or, does the association have a larger-than-usual number of owners who are delinquent in the payment of their assessments? If so, while the budget will show an expected legal expense for undertaking collection of delinquent accounts, it should also show corresponding income to the association that would include reimbursement to the association of the collection legal fees from the delinquent owners if either your state law or governing documents provides for reimbursement of such expenses (most do). In that case, in order to determine the net legal expense to the association you must deduct the income attributable to reimbursement of collection fees from the legal expense line item.
When an association retains a law firm to represent it, the board normally obtains proposals from several law firms and then interviews attorneys from those firms. Of course, the relationship between the association and its attorney is not merely a commodity. There must be an understanding of trust and respect for the opinion of the attorney. That may not always be provided by the least expensive attorney. Further, in some states, it is typical for attorneys to provide a menu of services for a fixed fee – often called a “retainer.” While there may be other legal services that fall outside of the contracted for services, the retainer often covers the matters that would typically arise in representing associations. In other areas of the country, attorneys will only perform work on an hourly basis, in which case the expected legal expense could vary widely from the budgeted amount and it is possible that the budgeted amount is conservatively stated – meaning since the association can never project what legal matters may arise over the coming year, the amount may be on the higher side to avoid having to assess the owners if unforeseen legal issues arise. The association’s manager should be able to advise the governing board whether the cost of representation is within what would normally be expected in the area where your community is located, taking into account the nature of the services being provided.
J. David Ramsey
Becker & Poliakoff
1776 on the Green
67 Park Place, Suite 702
Morristown, NJ 07960
Legal expenses can vary widely depending on what type of work needs to be done and the volume of that work. If the association has a substantial collections arrearage, the amount of legal expenses necessary to address it can be quite large. The good news is, while those fees and costs are paid up front, most of those amounts are recoverable on the back end as delinquent owners pay, since most associations have a provision in their governing documents stating that collection costs including legal fees are recoverable from the owner in the event of an account delinquency or violations of the covenants. Most other legal work that associations need to have performed are for a specific project or initiative and should be capable of being estimated and budgeted fairly accurately. Examples would be a revision/amendment of the governing documents, the handling of the transition from developer to association control, or the handling of litigation.
It is good and appropriate for owners to question any element of the association’s budget that may seem excessive or disproportionate. The Board should be able to explain and justify the basis for all budget line items, and legal expenses are no exception.
Sean A. O’Connor
Finkel Law Firm LLC
4000 Faber Place Drive, Suite 450
North Charleston, South Carolina 29405
Direct Dial 843.576.6304
Unfortunately, there is no formula. There is also no formula available to gauge whether a particular board is overusing legal counsel. It may very well be the case that your association’s legal expenses are completely reasonable given the legal challenges faced and/or the litigation that is ongoing. Presumably, the expense side of the budget for coming year was and is based upon the expenses incurred during the current year, as well as the board’s expected expenses for the coming year. Your board may have concluded – properly so, perhaps – that given any existing litigation, possible litigation and/or legal services that it expects to need in the coming year, the “legal expense” amount in this budget should be the amount that it is. There is no way to determine whether an association’s legal expenses are “too high” without knowing much, much more information. Arguably, even if the board has ‘over-estimated’ the legal expenses that the association will face next year, that ‘over-estimate’ may be welcome to the owners who are less likely to face a special assessment connected with “legal expenses” than they wuld if the board had “under-estimated” those expenses.
A board may be able to limit its “legal expenses” via several strategies. It could receive legal services in connection with flat fees. It could ensure that it is managed by professional management; professional management often being able to perform certain services, or provide certain direction, that a community may be unnecessarily relying upon legal counsel to provide. It could ensure that its current’s legal counsel’s rates are commensurate with said counsel’s competitors. It could ensure that its counsel has the necessary experience and skill in representing associations, so that it need not investigate or research the answers (and needing several hours to do it) requested (even if that experienced counsel’s rates are elevated). Lastly, an association may be entitled to a defense provided by its insurance carrier(s) with respect to certain claims that may be pending against the association. In such instances, the board may be unnecessarily incurring legal expenses to defend itself in lawsuits.
Ansell Grimm & Aaron, PC
David Byrne, Esq.
41 University Drive, Suite 400
Newtown, PA 18940
Phone: (267) 757-8792