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Contingent Fee Construction Defects Cases… Does it Sound too Good to be True?

By Ann Rankin, Esq., Law Offices of Ann Rankin

 

Do contingent fee construction defects cases actually save you money?  Well, there are no upfront costs for legal fees because the attorney doesn’t get paid unless he or she gets money for the case.  Some law firms even pay the architects, contractors, and other expert witnesses needed to prove the case.  But remember the old business axiom, “with risk comes reward…”  Your attorney is smart enough to only take contingent fee cases that will make them money– after all they run a business.  Depending upon your fee agreement, some lawyers may charge up to 40% or more of the amounts recovered!  The attorney may also be motivated to push you into a quick settlement, whether it’s adequate or not.  The faster the attorney can get the case settled and get paid, the more he or she may make per hour. This may not leave you enough money to complete the repairs to your building.

 

To minimize your risk of losing money, you should determine if it is cheaper to pay hourly fees, which may or may not involve your getting a bank loan, or accept a contingent construction defects case fee agreement.

 

Determine the Type of Fee Agreement that is Best for You

 

Hourly Fee Agreement

 

You will most likely save money when your fee arrangement is hourly. This only works if your association can afford to pay the legal fees and costs required to pay lawyers and experts needed to win your case.  However, you may use money in your reserves to fund the litigation.  Our firm recently settled with all but two of the defendants in a case involving a mixed use building in San Francisco.  We recovered over $15,000,000 for the client, and we expect to get more from the non-settling defendants by going to trial later this year.  The client did pay over $300,000 in legal fees to our firm.  However, if we’d had the case on a contingent fee arrangement, we’d have been paid over $5,000,000 for doing the same amount of work and for recovering the same amount of money!

 

Contingent Fee Agreement

 

For some associations the board is concerned about the cost and risk of litigation, and prefers that the attorney do the work without receiving hourly fees, and obtain a percentage of the recovery.  Then a contingent fee arrangement may be best, but you may still face recovering too little money to complete your repairs.  In that case, you may have to choose between imposing a special assessment to make up the shortfall, or being unable to repair water intrusion and other defective conditions affecting your homes.

 

Hybrid Fee Agreement

 

The Hybrid Fee Agreement involves payment of an hourly fee that’s less than what the attorney usually charges, and also payment of a percentage of the recovery.  With this arrangement, the percentage paid to the attorney is usually lower than what you’d pay with a straight contingency.  This kind of agreement allows you and the lawyer to share the risk of litigation and save you money with lower contingent fee at the end of the case.    This type of an arrangement can mitigate risk while reducing the percentage of recovery to which the attorney will be entitled.  It can work well in some circumstances; however it can also result in a higher payment to the law firm than would be the case with a straight hourly arrangement.

 

Every case and every client is unique. Think carefully about the risks and potential rewards of any financial arrangement with a law firm that you may be considering before you sign on the dotted line.

 

This article is a summary of general principles of law.  It is not a substitute for qualified legal advice about a particular project or claim.

 

Contact a qualified attorney if you have questions about a specific project or claim.

 

The comments, statements and articles contained herein are general in nature and should not be relied upon as a basis for any legal opinion, action or conclusion on the part of the reader with respect to any particular set of facts or circumstances.

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