Before diving head first into a discussion about legal fees, please enjoy a lawyer joke on me: Q: “How do you get a group of lawyers to smile for a photo?” A: “Just say, FEES!”
The subject of legal fees is often a hotbed of contention and confusion and can easily impair the balance of a client-lawyer relationship.
The key to minimizing the legal fee discord and to ensuring client satisfaction, is to have from the get-go, a candid tête-à-tête about how legal fees are billed.
Although a frank discussion about the minutiae of the breakdown of legal fees might sound more like a punishment than an advantage, rest assured that the information gained from such a dialogue is essential to achieving a positive and enlightened legal experience.
So, with that being said, let’s talk legal fees. In this blog post, I hope to demystify the legal fee and to provide the reader with some practical and useful information that will help the reader navigate the world of legal fees.
The Truth About Billing
In the Province of Alberta, the scope of legal fees is not regulated. Therefore, a lawyer is free to decide what hourly rate or flat fee to bill a client. Although there does exist provincial legislation which allows a client to tax a lawyer’s statement of account under certain circumstances, it is often a process that a client chooses to forego due to the inevitable time and expense necessary to make an application to the Court.
Without specific legislation currently in place to regulate how much a lawyer can charge for a particular legal service, there is an impetus by some lawyers to undercut their fees to compete with other lawyers who offer client incentives and reasonable flat fees or hourly rates. Consequently, should a lower legal fee be a determining factor when choosing a lawyer, it then becomes incumbent upon a potential client to seek out a lawyer who is economically suitable.
The Engagement Letter
At the stage when a client has chosen a lawyer, it is standard practice for the lawyer to have the client sign an Engagement Letter (also referred to as a Retainer Letter). An Engagement Letter describes and clarifies in writing the terms of the commitment made between the client and the lawyer. The intent of an Engagement Letter is to eliminate the possibility of future misunderstandings between the client and the lawyer.
The content of an Engagement Letter varies depending on the particular client and the specific nature of the matter. However, it is customary for an Engagement Letter to detail the following specific terms: the scope of the legal services; the type of fees and disbursements; the manner of communications with the client; and the withdrawal from representation. For the purposes of this discussion and greater clarification, the terms referring to fees and disbursements in an Engagement Letter provide an estimate of the fees and disbursements that the client is likely to incur and whether the client is charged at an hourly rate or a flat fee. Furthermore, the terms also specify the amount of any retainer received into trust and the rate of interest payable on outstanding accounts.
An Engagement Letter is therefore a useful document for both the client and the lawyer and can be utilized as a reference tool down the road should questions arise pertaining to any of the contracted terms.
Flat Rate vs. Hourly Billing
Generally, there are certain areas of law for which a flat rate fee is strictly billed. For instance, real estate law and wills and estates law tend to attract a flat rate billing structure. Other areas of law, such as litigation, divorce and business tend to attract an hourly billing structure and usually require a retainer to be paid into trust towards future billing costs. The hourly rate varies from lawyer to lawyer and is usually based on the expertise of the lawyer and the policy of the firm the lawyer works for.
It is worth noting that a flat rate fee only covers the legal cost of a standard transaction. Should a standard matter become contested and morph into a non-standard matter which demands a greater amount of time to be spent by the lawyer on the file, then a client will often be billed hourly for the extra time as per the terms of the Engagement Letter.
The (Hidden) Extras
Beware that in addition to the legal fee, the cost of disbursements is also billed to the client. Whereas the legal fee is strictly a cost for legal services rendered, a disbursement is an out of pocket expense incurred by the lawyer in order to complete the client’s transaction. For example, in a real estate closing, some of the disbursements incurred may include: title searches; tax searches; registration costs at Land Titles; and courier charges. Disbursements can quickly add up on a file and can almost equal or surpass the legal fee in some situations. Therefore, at the outset of your engagement, it is prudent practice to request from the lawyer an estimate detailing the expected cost of disbursements, including the cost of other potentially hidden extra disbursements.
Despite the diversity of billing practices in Alberta, there is still light at the end of the tunnel. In order to manage the unpredictable nature of legal billing, the client can demand transparency from the lawyer thus eliminating most, if not all, of the unknown billing factors relating to the client’s particular file. This transparency is achieved via consistent and continuing open communication between the client and the lawyer and also via the Engagement Letter and the terms contracted within the document. Finally, if at some point during the engagement the client and/or the lawyer become unhappy with the terms of the engagement, then there is always the option to part ways and dissolve the relationship.