Paul Horton: The Attorney’s Role in Commercial Transactions

As a transactional lawyer, I’ve seen the attorney’s role in commercial transactions has changed dramatically over the past several years. It is not always possible to wait for the client to request the preparation or review of documents. In many instances, the attorney must now assist the client in finding or creating business opportunities.

Sophisticated clients demand top performance from their attorneys. This goes beyond qualifications and experience. Transactions today are usually much more fragile, and the attorney must have the sense and perception to hold them together and then successfully close them.

At a time when client loyalty to attorneys is low, there is also a great deal of pressure on the legal profession to contain legal fees. Also, with the usual transaction being more complex and short fused, specialization and automation are essential.

While a successful result is paramount, an attorney must maintain a high ethical and professional level. The attorney must be a stabilizing influence and should avoid and try to stop senseless bickering between attorneys. The effective attorney need not use the so-called junkyard dog tactics and instead can be a team player. Additionally, the attorney must keep the client informed so that the client, rather than the attorney, can make the business decisions.

The Lawyer’s Scope of Responsibility

The business community is looking more frequently to attorneys to locate sources of funds. This requires a knowledge of the capital markets and those who are active in it. This may be accomplished through a direct introduction to the source or to one who has access, such as a mortgage broker or investment banker.

The structure of transactions is now much more complex and usually involves more than one source of funds. For example, current underwriting criteria of lenders requires substantial equity in a project. If an investor does not have the necessary cash or is not willing to part with it, then another level of funding must be added. This may be an investor, a partner or an equity lender.

It may be necessary to structure a business organization for a party or to tailor a transaction to satisfy a particular need. In addition, tax issues are common and a transaction may involve complicated governmental regulation. This would be the case in the sale of a security which, if not exempt, requires a registration.

The documentation for a transaction cannot be the main focus. It must also be simple and concise, yet complete and fair. So that the business terms are clearly understood, it may still be wise to start with a letter of intent which can also serve as an executive summary of the transaction. The requirement of a legal opinion is becoming more common and is not limited to institutional transactions.

Business relationships and agreements are difficult to establish and a challenge to keep intact. For this reason, an attorney must manage or assist in the management of the transaction until it is closed. This involves regular and clear communication and trouble shooting where required. An attorney with an inflated ego or a contentious personality does not have a place in the transactions of today.

Transaction Attorney’s Fees

In too many instances, the cost of the legal work is more important to the client than any other aspect of the engagement of the attorney. If clients require a flat fee or other controls on the costs, the scope of work and amount of time to be expended by the attorney must be clearly defined. Although a percentage fee may also have a place in a transaction, it may be more suitable as a finder’s fee or creating an opportunity rather than for performance of legal services. The fee determination is often based more on value than time. Also, part or all of the fees may be contingent upon achieving a successful result. An attorney may not always be able to accommodate this request because of ethical or financial reasons.

There are rare occasions where a one-line billing statement at the end of a project is appropriate. Usually, the billing statements should contain sufficient detail so that the client can understand the work that was performed and the costs that were advanced. The statements should be sent on a regular basis, usually monthly.

Hopefully, the competition between attorneys and others providing similar services will not put them into a bidding war for the work. As the old adage goes, “you get what you pay for,” and quality may be sacrificed. Also, it would be a mistake to put too much emphasis on an hourly rate, since excessive hours from an inexperienced attorney will nullify the benefit of a low hourly rate.

Written Fee Agreement

The scope of the work and legal fees must be discussed at the outset. The fee arrangement must be confirmed in a fee letter or agreement. The client should understand that the attorney is in the business of selling legal and related services, and the attorney should know that the client is entitled to expect and receive competent and timely legal services for a fair fee.

In engaging an attorney, the client should ask about the attorney’s experience, reputation, prior successes and availability. Also, the existence of adequate errors and omissions insurance coverage should be discussed. The client should be fair in its dealings with the attorney but should not tolerate any deficiencies in the work or conduct of the attorney.

An attorney should be retained early in the transaction and kept involved in the important stages. This will ensure that all of the deal points have been negotiated and are included in the final documentation. A good relationship between the attorney and the client is based upon mutual respect. A cooperative effort will go a long way in achieving a successful result.