By: Sarah Peel, Associate Lawyer
How do legal fees work?
There are a few different ways of paying legal fees. The most common methods of billing are hourly rate billing, flat fee billing, and contingency fee billing. The method of payment usually depends on the type of case you have. For example, most family law lawyers charge fees based on their hourly rate and require a retainer be paid in advance. A real estate transaction, however, might be conducted based on a flat fee. In personal injury cases, we typically use what is called a “Contingent Fee Agreement”.
Contingent Fee Agreements
When a lawyer says they "work on contingency" what they mean is that they will not charge you their hourly rate for fees. Instead, they carry the cost of your file to completion and only receive payment for their work when a settlement is obtained. Usually, this means the lawyer receives 25% of the settlement monies (after disbursements) and the remainder goes to you, the client. First off, it is helpful to explain the difference between fees and disbursements. Fees are what a lawyer charges for their time. Disbursements refer to things like postage, court filing fees, printing and photocopies. This means there is no upfront cost to you, the client, which ensures you can focus on your recovery rather than the financial impact of paying a lawyer.
So, what does this look like? Let's look at an example. Say your lawyer obtains a settlement of $110,000 and (for the sake of easy math) there are disbursements on your file totalling $10,000. $10,000 would go to paying those disbursements and the remaining $100,000 is used to calculate fees. The 25% would be $25,000 +HST = $28,750 paid to your lawyer and you would receive the difference of $110,000 - $10,000 (disbursements) - $28,750 (legal fees) = $72,250.
There is no upfront cost to you.
If there is no settlement, there is no cost to you.
If a settlement is reached, the lawyer's fees are 25% of the settlement (after disbursements)
Hourly Billing / Retainer Agreements
A retainer is an amount paid in advance which ensures your lawyer can complete the steps necessary to initiate your case. For example, if you are looking to obtain a divorce, you most likely will be asked to provide a retainer up front. Depending on the complexity of your case, there can be a wide range in terms of retainer amount. Typically, you could expect a retainer to be between $1,500 and $5,000. Essentially, "working on retainer" means the client provides an amount as a retainer upfront and is then billed on an hourly basis, using the retainer up first.
Flat Fee Agreements
A Flat Fee Agreement is typical for things like wills, powers of attorney, and residential real estate transactions that are more easily quantified in advance. In these agreements the fee amount is set in advance (i.e. for a flat fee). For example, a will and power of attorney might be completed for a flat fee of $500 plus HST and disbursements. Using this method, the lawyer completes the work and then receives payment upon completion.
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