During a question and answer session at a recent industry conference, a home builder asked Moody’s Analytics chief economist Mark Zandi for his thoughts about the labor
Which Attorney Is Right for You?
Is your current attorney competent for your needs, and how would you know if he or she wasn't?
All builders probably can tell at least one attorney joke, but ask them who would be the first person they would call if they were to receive a letter from an irate customer. Or the first person they have called when they failed to meet a closing date. The answer to these and a host of other questions relating to best business practices is the company attorney.
While there are attorneys who are practicing generalists covering a multitude of specialties, many attorneys now are members of firms that practice across the legal spectrum. This provides the firms' clients with a variety of expertise under the same umbrella.
But where should you go to shore up your legal defenses? Is your current attorney competent for your needs, and how would you know if he or she wasn't?
Depending on the scope of your business, you may or may not have an attorney you regularly consult. If, for example, your custom home building contract previously had been reviewed by an attorney in the past, or if you've yet to be sued by a client, you might not have a regular "corporate" attorney.
Conversely, if your business is diversified and includes activities beyond custom residential construction (e.g., land development, rental properties, etc.), you probably seek out legal advice multiple times throughout the year. But is your attorney right for this type of work, and/or is he/she right for you?
Builders should consider selecting an industry-experienced law firm to represent them on matters relating to the building industry. But the task is not as simple as it once was.
How to Start
Dave Ramsey of Hersh, Ramsey & Berman in Morristown, N.J., suggests that builders seek attorneys with land-use experience - specifically attorneys familiar with the permitting process. Additionally, Ramsey says an attorney should have experience with individual transactions so he can guide the builder through the contract phase with the builder's clients.
Similarly, Kevin O'Malley of Gallagher & Kennedy in Phoenix says a law firm should be able to address critical issues significant to all builders. He says a builder should rely on an attorney to understand insurance law so the builder receives the most comprehensive liability coverage available. The attorney also should review all contracts used by the builder to ensure that they protect the builder and his company. And a builder's attorney should be able to manage the builder's litigation if/when the builder is sued.
A good place to start the attorney search process is with your peers. Asking colleagues whom they use for legal services should provide the names of attorneys and law firms you should contact as well as the names you should avoid.
When speaking with peers, ask about their relationship with their attorney. For example, how responsive was the attorney when called? Were the outcomes of the work satisfactory? Were expectations met?
Involvement with a home builders association also can yield significant results. The nature of the organization lends itself to involvement by those working in industry-related fields and provides a great opportunity to meet and speak with attorneys casually at association meetings.
The Initial Appointment
Once you've secured the names of a few prospective attorneys or firms, arrange appointments to visit each. And don't be reluctant to call an attorney because you've heard he's busy. "A busy attorney is an attorney who is getting things done," Ramsey says. But be certain to ascertain whether that same attorney would have time for you if he takes you on as a client.
Obviously, an attorney too busy to make an appointment with a prospective client might not be the right attorney for you. After all, the salesperson in all of us is apt to put his/her best foot forward to a prospect, with the hope of luring the prospect as a client (unless, of course, you don't want or need additional clients).
Once you're in the door with an attorney you are considering as your counsel, ask questions relevant to the type of work you need done, as well as the experience of the attorney who will do that work. Your agenda is straightforward: Find an experienced, competent attorney who will be able to relate to you and the issues critical to your business.
First, ask about the attorney's experience. No national accreditations are unique to the building industry, so ask how much experience the attorney has in matters relating to your business.
If the attorney has experience in the building industry, he should be willing to share his client's names with you. As Ramsey points out, many issues involving builders are public matters, so discussing builder representations is typically a matter of public record. Ask if you can speak with some of those clients. And when you call, don't forget to ask the same questions you asked of your builder friends.
If you know the attorney you are considering has a busy practice, don't be afraid to ask whether he has time for you as a client. "Set an expectation: When will I get a call back?" Ramsey says. If those expectations are set upfront, either party easily can determine when they are not being fulfilled. And in a firm with multiple attorneys, find out who will be on your legal team and which attorney will serve as your contact person.
Ramsey also notes that experience with new home construction is critical. An attorney must know, for example, to include a bedrock clause in any new home construction contract. An attorney who specializes in real estate transactions but not specifically on the builder side might not know that type of detail.
Ask whether e-mail is an acceptable form of communication. In today's world, where everyone is connected, even busy builders in the field can log on and communicate with retained professionals.
Finally is what Ramsey calls "personality match." You can hire the most competent attorney in the world, but his skills won't assist you if you don't connect personally. But don't confuse camaraderie with competency; a nice guy who makes a critical error can cost you money. Select an attorney for the related experience and his skill in doing the jobs you need accomplished.
While discussing fees might be appropriate when meeting or working with an attorney, selecting a law firm because it charges low fees is probably a mistake. Also, retaining counsel because he charges the highest fees also would be wrong. "Fees is a sensitive topic," Ramsey says.
"Most people are willing to pay a fair fee if they're getting a good quality of work," O'Malley says. And paying a flat rate for certain routine legal work appears to be an acceptable practice. A single fee for a routine real estate transaction or contract review might be agreeable (and preferable) to you and your attorney. It's the fees for nonroutine work that probably cause the most angst among builders.
Regardless of hourly rates, an attorney experienced in your specific legal issue might be able to advise you with only a half-hour of billable time. In contrast, a less experienced attorney who might have to research your problem before rendering an opinion might bill at a lower rate but for more hours. In the end, the higher-billing but more experienced attorney would cost you less.
Getting out of a Relationship
As with any relationship between two parties, sometimes one participant doesn't take away from the relationship what was expected. And that holds true for matters involving attorneys and their builder clients.
O'Malley says a builder who believes he is not getting appropriate services from an attorney should have an honest, candid conversation with the counsel. That conversation should include specifics detailing why the builder is disappointed in the attorney's performance. If the intent is to remain with that attorney, the builder should explain clearly what he expects and the time frame in which those activities should occur.
If the builder decides to change counsel, he also should explain that directly to the attorney. If an attorney is working on a project with a builder who decides to change counsel, the builder should not be concerned that the attorney will not finish the job. Attorneys ethically are obligated to service clients professionally. They also are obligated to turn over files and relevant documents to the successor attorney.
From a strictly business perspective, O'Malley and Ramsey point out that the builder community is a relatively small universe. While a builder might leave an attorney today, he might return in the future. O'Malley says he's seeing more of that as a result of merger-and-acquisition activity in the industry. The builder also might return to an attorney who has a unique skill that might help the builder solve a future problem. Thus, it's in the best interests of all parties to act professionally.
Staying in a Relationship
A relationship with an attorney who will handle most of your company legal matters should be entered into with the assumption it will endure. After all, searching for a new attorney takes time, which most builders would rather devote to their business.
Communication is probably the leading reason why relationships deteriorate (think: marriages) and should be the biggest priority in an attorney/builder relationship. The obligation for prompt and effective communication falls not only on the attorney but the builder as well.
O'Malley also points out another client obligation: the monetary one. Attorneys want clients who appreciate their advice, communicate as required and pay for services rendered in a timely fashion.
O'Malley says the best relationship is forged when a builder uses an attorney's full services. Provide your attorney with your insurance policies, for example, to ensure that your insurer has your firm adequately covered in case of a lawsuit. Have him review all existing contracts, including agreements with subcontractors and customers. "Real challenges are out there for which you'll need legal advice," he adds. The question you must ponder: Is your legal team up to the task?
Stan Ehrlich is a personal financial adviser in Clinton, N.J. You can contact him at firstname.lastname@example.org.