Legal Retainer Agreement FAQ
In legal vernacular, a retainer refers to an advanced payment or deposit, often of a lump sum, made by the client to the attorney prior to the commencement of the legal services.
The term "retainers" are commonly used in business transactions, meaning a client is paying a lawyer in advance for a defined scope of work under a written agreement. The lawyer holds that money in a trust account until the work is performed and is collected. A "legal retainer" on the other hand means that the lawyer is holding the retainer on his/her own behalf, for an as yet unearned fee . It is not uncommon to make a non-refundable retainer in a business transaction, but it can be useful as a security for payments to be made as a contingency of the contract.
It is important to note that the payment of a retainer does not negate the ability of the client to walk away from their obligation, nor does it prevent the attorney from discontinuing their services at any time – pending the withdrawal procedure established by the state guidelines.
A legal retainer agreement should outline the information below:
Essential Components of a Retainer Agreement
An effective retainer agreement will contain most or all of the following components:
Description of Services: A description of the matter the attorney is being hired to assist with, as well as a description of the particular work the attorney is agreeing to do. If the client is hiring the attorney for a specific purpose, such as trial, drafting of documents or executing a real estate contract, the retainer agreement should be clear as to which work is covered by the retainer and which is not.
Payment Terms: The retainer agreement should clearly identify the amount of fees required and how the attorney may withdraw funds from the retainer held in trust. Illinois rules prohibit advance payment of fees (fees paid up front may not be held in the attorney’s client funds account). Rather, the attorney must withdraw funds from the retainer as the work is performed or is scheduled to be performed.
Non-Refundable Fees: A non-refundable retainer may be described as a "true retainer," as opposed to an advanced fee deposit, either because it is intended as an advance fee, or because the receipt of the payment does not correspond to services performed. To be non-refundable, the services must be described as being in exchange for the payment. For example, attorneys often require an advance fee deposit for the first 5 hours of work, which is not refundable if the attorney is later discharged. In contrast, an attorney may allow a retainer to be applied to certain costs and under which the remainder is refundable at the end of the case. Hence, some retainers are partially refundable and some retainers are not refundable at all.
Time Period / Term: The agreement should tie the retainer to a certain matter and, if appropriate, a certain time period. This allows the attorney to withdraw the amount remaining at the end of the applicable period. Though a retainer is general considered an ongoing obligation, some matters are much shorter than others. If you expect the work to be short-term, specify the application of the retainer to your fees to keep control of any remaining balance.
Termination: If your representation is for a discrete matter, define the date at which the client must replenish the retainer amounts. Then, if the matter is resolved before the retainer has been exhausted, the retainer is released. If part of the retainer is non-refundable, for whatever reason, specify that amount and the condition under which it may be converted to a fee.
Common Types of Retainer Agreements
Retainer Agreements require sufficient detail to be enforceable. For example, the Supreme Court of Texas stated that a retainer agreement must include "at least a description of the activity to be performed . . . and the basis or rate of the fee."
There are different types of retainer agreements. The most common are general retainers, such as the retainer issued in the beginning of the attorney-client relationship, special retainers, which are paid to cover specific litigation or legal matters, or hybrid retainers, which have both general and special retainer terms. In some jurisdictions, the term "non-refundable retainer" may be used for a special retainer agreement.
General Retainers. A general retainer is most often used to provide legal services to an existing client whenever an issue arises. General retainers tend to fulfill two purposes — to provide a fee for the general availability of the attorney to the client throughout a given period of time, and to provide a minimum amount of payment for the attorney’s consideration. The most common is the concept of consideration because lawyers are often asked the question of availability (and when they will be available) — a question that a client will reserve for a one-time situation.
Special Retainers. A special retainer is generally paid before legal services are rendered. This type of retainer provides a mechanism for attorneys to be compensated by clients who may or may not be able to afford the ultimate bill. It is often used by clients who want to protect themselves from being overbilled for services. The fees are deposited in a trust account, and the attorney withdraws fees from that account based on the work done.
Hybrid Retainers. Sometimes, attorneys and clients utilize a hybrid retainer that involves both a special retainer and a general retainer. This type of retainer can be used to provide the client with an engagement fee, and then charge the additional costs on an hourly basis in accordance with the engagement fee agreement.
In some jurisdictions the term "non-refundable retainer" is frequently used to describe the agreement, but almost all lawyers understand a non-refundable retainer agreement to reflect a special retainer, even though the terminology may differ in local markets. The term "non-refundable retainer" reflects the fact that the entire initial fee is considered an advance payment for future services. However, these fees should still be placed in the attorney’s trust account pending the actual performance of legal services by the attorney.
Preparing a Retainer Agreement
The best way to prepare and help protect your client and yourself is to have a written agreement and to spell out who is responsible for what. And yes, you must explain and discuss the retainer with your client. If you anticipate that a problem may arise regarding a retainer that you are asking a prospective, or a repeat, client to advance, then you should take extra time and care and protect yourself and your law firm financially and legally by having the client sign a retainer agreement, acknowledging that he/she "understands" that the retainer is to be advanced, and not earned at the time of the advancement. The retainer agreement should include the signatures of both the attorney and the client, acknowledging that the aforementioned applies. Yes, the very first retainer agreement I attended at the start of my legal career, back in 1980, spelled out in detail how the retainer would not be earned until the work was done. It included the fact that if the retainer was not used up, a portion would be returnable to the client. All that being said, it is still my personal philosophy to have clients advance a retainer for a specific task in mind and to earn that retainer with each task completed. Many clients do not understand the purpose of an advance retainer; even lawyers may think it is pretty clear, but it is not. Your retainer agreement must include a section at the very start, either this or something similar, where the advance retainer is explained. If you want a specific amount, as opposed to some percentage of your hourly or flat fee, state that here too. It should be stated as follows: This Legal Services Retainer Agreement is made as of __________, between ________________ (the Client) and __________ (the Firm). The Client agrees to advance an initial retainer in the amount of $________________, on account of legal fees to be incurred and for other costs to be incurred by the Firm in the representation of the Client. It is understood and agreed by the Client that in the event the full retainer is not needed, the balance of the retainer will be refunded to the Client at the conclusion of the matter in which the Firm has been engaged, promptly upon the Client’s written request. The Firm agrees to review its billing records to date, and will advise the Client in writing as to the retainer remaining upon the completion of its work.
Avoiding Common Mistakes
The most common mistake we see time and again is Lawyers and Firms creating a one size fits all retainer agreement. We’ve seen some that are paragraphs and paragraphs long with terms that have absolutely nothing to do with the matter at hand. But what they do is create confusion later on in the relationship when there is a dispute. Vague terms are another big issue we see in retainer agreements. It’s a common pitfall thinking one term or clause covers everything the Lawyer wants to convey when it doesn’t. A common example is the fee structure not being clearly stated. Many Lawyers use their retainer agreement as a place to list their fees for various services. However, there is no standard to say whether it will be billed hourly, flat fees, contingency or some combination of them. Some clients may come to expect an hourly arrangement when in actuality the Lawyer intends to work under a flat fee . There is nothing wrong with using your retainer to list your fees. Sometimes it’s even better, but make sure you are clear on the payment structure so you don’t have a client expecting one structure and getting another. Another common pitfall is running away from the harsher side of business by failing to include a dispute resolution clause in your retainer agreement. Specifically in Georgia, you can’t put binding arbitration clauses in your retainer agreement with clients, however you can have a clause that states a mediation must be attempted before any other form of dispute resolution or litigation is filed. Mediating a dispute has always been better than going to court. Most often mediated matters resolve as the parties come to the middle and most importantly, they don’t destroy the relationship by going to court.
Concrete Legal Requirements and Best Practices
Legal retainer agreements are governed by the common law and other statutes. Several courts have provided that to truly be retained, a lawyer must be given authority to act on behalf of the client. A lawyer who fails to provide legal services as agreed has not provided consideration. Such reasoning is consistent with Thème System v. Gillett, where the California Court of Appeal held that: "A retainer agreement provides for continued relationship between attorney and client according, to the mutual expectation authorized by the client to further represent it. One of the purposes of such an agreement is to provide for the future advancement of attorneys’ fees which will be due the attorney conditioned upon the satisfactory completion of those future services."
Legal retainer agreements should contain the following:
• The legal services to be provided by the attorney;
• The attorney fees and costs to be charged;
• The scope of the attorney-client relationship;
• The services included in the retainer agreement;
• The hourly or flat rate fees charged for work performed;
• A provision for withdrawal by the attorney without client consent;
• A contingency fee agreement if a contingency case is being worked upon;
• Responsibility of client for costs; and
• Procedures for billing and payment.
These provisions ensure compliance with the California Rules of Professional Conduct and the California Business and Professions Code Sections 6147 and 6148.
Retainer Agreement Sample Template
[*Note: This is a very basic template outlining the major sections of a retainer agreement. Each firm should be careful to include all terms and conditions necessary to meet their individual business model, as well as relevant local, state and federal law. This sample must be fully customized by each reader for their use.]
Heading
[Date of Agreement]
Client Name
Attorney/Trust Account Name
Introductory Paragraphs
I hereby authorize a retainer to be paid to Attorney/Trust Account Name for legal services in accordance with the below legal retainer payment schedule.
A non-refundable retainer payment is due at the signing of this agreement in the amount of _______________________.
All payments made under this agreement will be held on behalf of Client and may only be used as follows:
Retainer Payment Schedule
For the following services, the Client agrees to pay the Attorney/Trust Account Name in accordance with the following retainer payment schedule:
Period of Time:
For the services listed above, the Client shall pay the Attorney/Trust Account Name:
Amount:
In addition to the above retainer , the Client authorizes the Attorney/Trust Account Name to bill at his/her hourly rates, at the following:
Additional Paragraphs
The Client agrees that the Attorney/Trust Account Name shall be paid for all legal services as they are performed before any work is commenced or completed.
Any balances owing at the conclusion of the legal matter shall be paid immediately.
The Client shall receive an accounting statement and payment of any balance due to the Client no later than 30 days from the date of this agreement.
The Client authorizes the Attorney/Trust Account Name to file any and all documents on behalf of the Client for the purpose of ensuring timely filing without prejudice to the Client.
The Client understands, acknowledges and agrees that the Attorney/Trust Account Name maintains the right to withdraw from representation of the Client if the Client fails to abide by the terms of this agreement. All balances due and any unearned amounts shall be paid immediately.
The this section of the legal retainer agreement is signed by the Client and the Client’s Counsel as affirmation that the Client understands the terms of this contract.