Selection of association legal counsel is one of the most important decisions a community association board of directors will make. Engaging legal counsel can have long-term implications for your community. Getting the best possible attorney for the association will have far-reaching benefits and we want to share our experience in how a board can get the decision “right.”
Experience and Specialization – Cultivating Trust and Confidence
Naturally we all expect an attorney to be competent and professional. It is an attorney’s judgment, effectiveness, commitment to excellence and responsiveness that set them apart. An attorney-client relationship involves personal services. A board of directors is entitled to, and must rely, upon its legal expert in all manner of decision making. Therefore, it is important to make sure the legal professional engaged by the Board is the “right” one for the Association. Choosing counsel is a board decision.
Community association law is a highly specialized area of the law that requires expertise and experience in a variety of other legal specialties, such as corporate governance and director liability, fair housing, contract negotiation and interpretation, real estate, construction, insurance, environmental regulation, creditor’s rights (including assessment collection, foreclosure and bankruptcy), litigation, and employment law.
The “right” attorney for your association will address these legal specialties with a broader view of the entire operation of your association and not as a singular, isolated event. The “right” attorney will have significant experience in handling legal issues on behalf of community associations and have the resources necessary to address other highly specialized issues (e.g. litigation, personnel and employment, constructions contracting and project management, financing, and environmental issues, to name a few) when they arise.
Resources are available if you are unsure of an attorney’s experience in community association law. Since 1993, the Community Associations Institute (CAI) has recognized excellence in the practice of community association law through the College of Community Association Lawyers (CCAL). Fewer than 175 have been granted membership in the College. Fellows of the College have distinguished themselves through contributions to the evolution and practice of community association law. Fellows are also recognized for committing themselves to high standards of professional and ethical conduct.
Not all firms focusing on community association representation have the resources available to address all of the legal issues faced by community associations, requiring engagement of a specialist any time those issues arise. If engaged separately, specialists may inadvertently ignore the full operation of your association while focusing on the specialized area of law. Routinely utilizing more than one law firm creates inefficiencies, duplication of effort, and increased cost for legal services.
The Board should ask all potential candidates:
Effective Guidance – Preventative and Reactive Counseling
The “right” attorney for your association will approach representation of your association with preventative approach, but will have the resources available to react to any situation that arises.
Preventative counseling will result in long-term savings to your association and brings with it a number of other benefits, such as reducing legal risks by identifying those risks early, structuring association relationships and transactions to be advantageous to the association and avoiding unnecessary legal disputes and litigation.
The “right” attorney understands that one of the best ways to avoid liability and ensure a successful relationship is to work with community association volunteer leaders and managers that are informed about their legal rights and responsibilities. Your attorney should be dedicated to providing educational opportunities.
Continuing education is not limited to community association volunteer leaders and managers. The “right” attorney will also be committed to professional development and education, devoting time and energy to continuing to stay current with laws and regulations and laws affecting community associations. Your attorney should regularly attend local and national events and conferences about issues related to community associations to identify legal trends and solutions.
Finally, preventative counseling requires your attorney to be well-informed about changes to the law affecting community associations. The Virginia Condominium Act, adopted in 1974, and Property Owners’ Association Act, adopted in 1988, have been substantively amended every year by the Virginia General Assembly. The “right” attorney will monitor those changes to the law and advise your association how to address those changes before the changes become law on July 1 of each year.
The Board should ask all potential candidates:
Communication – The Lifeblood of an Effective Relationship
Proactive communication between attorney and client is an essential aspect in creating an effective relationship and avoiding legal issues and unnecessary expense. Community association practitioners should understand the importance of communication and offer ways to stay apprised of Association business that will not drain association resources.
Strong lines of communication include offering a way for the Board liaison (either a director or managing agent) to transmit information from the Board to Association legal counsel clearly and unambiguously.
Even if Association legal counsel is qualified to provide counsel to the Association, the Board must be able to interact with the attorney (by phone or e-mail) when necessary. Poor responsiveness is routinely the number one complaint about attorneys.
With this in mind, the Board should assign significant value to attorneys and firms that are dedicated to timely responses.
The Board should ask all potential candidates:
Seeking Value – Cost/Service Balance
The cost of legal services should not interfere with a relationship between your association and legal counsel. The “right” attorney will offer value to your association, balancing effective advice and services with the cost of those services. When necessary to ensure value, the “right” attorney will also offer alternative fee structures (“blended” rates, a retainer program, or contingency or flat fees) to offer your community increased value for services it needs.
It is sometimes assumed that the attorney with the lowest hourly rate offers the best value to the association. This is not true. Associations may incur more expense with an attorney despite a lower billable rate based on a lack of experience and judgment, timeliness of response or failure to offer alternative fee structures.
Hourly rates (i.e., charging by the hour) are the most common billing method for attorneys. Attorney hourly are affected by experience, skill, judgment, firm resources and geographic location and ensure your association pays only for actual work performed.
The hourly charged by a particular attorney may not be the actual hourly rate incurred by the association. A truer measure of the value of services based on hourly rate is measuring a firm’s “blended rate,” factoring the average hourly rate charged to the association that include time billed by associates, paralegals, and other staff members. Legal work should be distributed to the professional with the lowest hourly rate and necessary expertise to perform the task efficiently.
Smaller firms and solo practitioners may not have the support staff (associates, paralegals, and legal assistants) to reduce the hourly rate or establish a blended rate. The quoted hourly rate for the primary legal contact is the actual hourly rate that should be expected.
A lack of experience or judgment or access to resources may have a tremendous impact on the cost for accomplishing a specific task. For example, if a more-experienced Attorney A requires one hour to complete a task at a rate of $275 per hour, and a lesser-experienced Attorney B requires only an additional 12 minutes to complete the same task at a rate of $230 per hour, the association will incur more expense using Attorney B, despite an hourly rate of $45 less per hour.
This example is exacerbated if Attorney A supervises a qualified, lower-billing associate (with a rate of $200.00 per hour) to assist with the task, resulting in a “blended rate” $215 per hour (.8 hours at $200 hour, plus .2 hours at $275 per hour). Using the “blended rate,” the association would actually pay $15 more per hour by engaging the lesser-experienced Attorney B.
An association should not be lured by a lower hourly rate for legal services any more than it would be for the monthly payment on a car. This way of pricing legal services ignores value, results, integrity, and efficiency.
The “right” attorney will understand that charging for services only on an hourly rate has some disadvantages. Minimum billing increments may discourage communication between the association and counsel. Hourly rates can be difficult to budget. The right attorney recognizes that certain practice areas also are uncertain, such as litigation, with experience and judgment, can help an association manage its legal costs, providing significant value.
To address a need for more certainty in the budgeting process, the “right” attorney should offer some form of annual retainer, a fixed fee in which the association pays an annual amount (payable in monthly or quarterly installments) for specified services. Annual retainer agreements may include telephone consultation, reduced hourly rates, Board training and other services.
Contingency and Flat Fees for Assessment Collection
The “right” attorney will understand that certain services, such as assessment collection, require special billing practices in order to adequately serve the association’s needs. Association legal counsel should offer certain services (such as the preparation and recordation of a lien) on a flat fee, fixed, basis to ensure the board knows the fee for that service.
The “right” attorney will know that if the law firm is unable to recover funds for the association, the board is uneasy about paying for those efforts. A contingent fee should be offered to ensure the attorney is entitled to a certain percentage of any amount actually recovered by the association. Contingency fees show a commitment by a firm to be a part of the association governance team, sharing in the risk (and reward) of efforts taken on behalf of the association in routine collections matters.
Conversely, an association should not expect that an attorney who bills collection matters solely on a contingent fee basis would provide the best service for an association, as there would be little, if any, reason to put a great deal of effort into matters that are uncollectible or have very little rates of return, such as bankruptcy cases. Bankruptcy requires a special admission to bankruptcy courts. Estate cases, cases that are deemed uncollectible, low dollar amounts, contested matters, estate cases, foreclosures, etc. are examples of non-routine collection-related matters that an association should expect to be handled on a basis other than contingent fee.
As the board considers contingency fees, however, the board must remember that like hourly rates, taking the lowest percentage contingency does not ensure the association will net more funds than a higher percentage contingency.
On a note related to contingency fee payments, we understand that some contingency fee arrangements for assessment collection require an upfront advance of funds by the association at the time of referral (which is to cover potential costs) before any action will be taken, and, once referred to an attorney, the Association ceases to accept payments from debtors (many of which have electronic payment methods established), and all further payments be made payable and deposited to the attorney, with an escrow check later sent to the association for the net proceeds. This arrangement does not mean the association does not pay for legal services, it merely provides the attorney sole authority to accept and distribute funds. It may provide an appearance of paying less or no attorneys’ fees or only in the event of successful collection from the attorney, but it can lack transparency and requires the association to outlay costs at the time of referral before any funds are recovered.
We strongly recommend that all payments from unit owners be made directly to the association to provide immediate and continued access to those funds by the association. A separate invoice should be submitted by the attorney for the portion of those funds the attorney is entitled to under the fee arrangement.
The Board should ask all potential candidates:
Choosing counsel is an important decision. The association attorney is a trusted advisor, as well as advocate and resource for the community. A board should interview counsel, and make sure it feels the attorney is one with whom it can have a relationship of trust and confidence. There is more to choosing counsel than the lowest hourly rate.
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