Funding options for legal services - Private retainers

Learning Outcomes

This article outlines the fundamental aspects of funding legal services through private retainers, specifically focusing on hourly rate agreements and fixed fees. After reading this article, you should understand the nature of the solicitor-client retainer concerning payment, the requirements for providing clear costs information, and the characteristics, advantages, and disadvantages of hourly billing and fixed fee arrangements. This knowledge will assist you in applying relevant legal principles to SQE1 assessment questions on client care and funding options. In addition, you should be able to identify what must be included in the client care/retainer letter regarding costs, the difference between an estimate and a fixed fee, how money on account and interim billing operate in practice, and the client’s rights to query or challenge bills. A solid understanding of scope-of-work definitions, VAT and disbursements, and the solicitor’s duties to update costs information as matters progress is also expected.

SQE1 Syllabus

For SQE1, you are required to understand the different ways legal services can be funded, including private funding arrangements, and the practical implications of agreeing on costs with clients and the professional conduct obligations involved, with a focus on the following syllabus points:

• The concept of the solicitor-client retainer regarding costs.
• The different methods of private funding, particularly hourly rates and fixed fees.
• The solicitor's professional duties concerning providing clear and timely costs information.
• The advantages and disadvantages of different private fee structures for both the client and the firm.
• The components of a client care/retainer letter relevant to costs (scope of work, pricing basis, VAT, disbursements, billing frequency, complaints handling, and the circumstances under which fees may change).
• Practical features of private funding: money on account, interim bills, and how disbursements (including counsel’s fees and court fees) are handled.
• The distinction between a costs estimate, a fee cap, and a fixed fee, and how scope changes affect pricing.
• The solicitor’s ability to cease acting for non-payment with reasonable notice, and the existence of a retaining lien over papers until fees are paid.
• Basic client protections in relation to bills (itemised bills and the ability to seek court assessment under the Solicitors Act).

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which document typically outlines the agreed fee structure between a solicitor and a client at the outset of a matter?
   1. The final bill
   2. The client care letter/retainer agreement
   3. The court order
   4. The pre-action protocol letter
2. A solicitor agrees to handle a standard residential conveyancing matter for £1,500 plus VAT and disbursements. What type of fee arrangement is this?
   1. Conditional Fee Agreement
   2. Damages-Based Agreement
   3. Hourly rate
   4. Fixed fee
3. What is a key disadvantage for a client when paying for legal services based on an hourly rate?
   1. The total cost is known precisely from the start.
   2. The solicitor is not incentivised to work efficiently.
   3. The final cost can be uncertain and may exceed initial estimates.
   4. It is only available for litigation matters.

Introduction

When a client instructs a solicitor, a contractual relationship is formed, commonly known as the retainer. A fundamental part of this agreement concerns how the solicitor will be paid for the services provided. One of the most common methods is through private funding, where the client pays the solicitor directly from their own resources. This article explores the main types of private funding arrangements: charging by the hour and agreeing on a fixed fee. Understanding these is essential for advising clients appropriately and ensuring compliance with professional conduct requirements regarding costs.

Key Term: retainer
The contractual agreement between a solicitor and client setting out the terms on which the solicitor will provide legal services, including the basis for charging fees.

A solicitor's professional obligations require transparency and clarity regarding costs. Clients must be given the best possible information about pricing, including the likely overall cost and any expenses they might incur, both at the start and as the matter progresses. This helps clients make informed decisions about the services they need. The client care/retainer letter should set out the scope of work, any key assumptions or limitations, the fee structure, VAT and disbursements, the likely timescale, billing frequency, and how complaints (including bill challenges) are handled. For certainty and to avoid disputes, the retainer should be in writing and signed or explicitly agreed by the client.

Key Term: costs
In the context of legal services, costs typically refer to the solicitor's fees for the work done plus any disbursements (expenses paid to third parties, such as court fees or expert witness fees).

Key Term: disbursements
Payments to third parties required to progress a matter (e.g., Land Registry fees, search fees, court fees, counsel’s fees). Disbursements are separate from the solicitor’s own fees and may attract VAT depending on their nature.

In practice, firms frequently request money on account at the outset to help fund disbursements and initial work. This is common for both transactional (non-litigation) matters and privately funded litigation. Interim billing (often monthly) helps clients monitor spend and helps firms manage cash flow. Where hourly rates are used, clear and realistic estimates should be given and kept under review; where fixed fees are agreed, scope and exclusions must be defined carefully.

Key Term: money on account
Funds paid by the client at the start of the matter to be applied to future fees and/or disbursements. Unused balances are returned; shortfalls are billed and payable by the client.

Scope clarity is critical. There is no general retainer obliging a solicitor to advise on everything for a client; duties relate to the work actually instructed and agreed. Courts have emphasised the need for precision in the engagement terms and cautioned against assuming additional duties beyond the legal work contracted. For example, a solicitor may be expected to flag legal aspects material to price in a property transaction, but there is no general duty to advise on commercial merits or the price itself unless expressly agreed. In a commercial setting, whether advice extends to recommending guarantees or assessing business risks depends on what the retainer says. This reinforces the importance of defining what is and is not included, and of documenting any changes to instructions.

Firms must also comply with regulatory cost transparency duties. At a minimum, solicitors must provide the best possible information on costs at the outset and update that information when circumstances change. In certain service areas, firms must publish price and service information on their websites; even where that does not apply, clear and accessible costs information remains a regulatory requirement. Clients should also be told about their right to request itemised bills and how to challenge bills, including routes for complaint and the availability of court assessment.

Hourly Rate Funding

Charging based on an hourly rate is a traditional method of private funding. The final bill depends on the amount of time the solicitor spends working on the client's matter.

How Hourly Rates Work

The solicitor will inform the client of their hourly charging rate at the outset. Different fee earners within a firm (e.g., partners, associates, trainees) often have different hourly rates reflecting their experience and seniority. The solicitor must keep accurate records of the time spent on various tasks related to the client's case, often recorded in units (e.g., six-minute units). The final fee is calculated by multiplying the time spent (in hours or units) by the applicable hourly rate(s).

Key Term: charging rate
The amount a solicitor charges per hour for their time spent working on a client's matter. This rate usually excludes VAT and disbursements.

Time recording must be honest and contemporaneous, reflecting what was reasonably required to progress the matter. Time spent by different grades of fee earner will be billed at their respective rates unless a blended or single rate is agreed. Travel, waiting, and administrative tasks may be chargeable if they are part of the work necessary to deliver the service; firms should explain their approach to such time at the outset.

Costs information under an hourly arrangement should include:

• The applicable hourly rates for each fee earner expected to work on the matter and whether rates may change (with notice) during the matter.
• The basis of time recording (e.g., six-minute units) and whether minimum charges apply for certain communications.
• An estimate of the likely overall cost for the agreed scope, together with assumptions and exclusions on which the estimate is based.
• Anticipated disbursements (and whether they are inclusive or exclusive of VAT).
• The frequency of interim bills and the amount requested on account.

An estimate is not a fixed or capped amount. It is the solicitor’s best assessment at the time. If the matter develops in an unforeseen way or the client’s instructions change, the estimate must be updated promptly with reasons and revised likely costs. If cost certainty is a priority, a client may prefer to agree a cap or a fixed fee for defined stages or tasks.

Key Term: estimate
The solicitor’s best assessment of likely overall cost (fees and disbursements) for the agreed scope, based on stated assumptions at the time. It is not a binding maximum.

Advantages and Disadvantages (Hourly Rate)

For the solicitor, charging by the hour ensures they are paid for all the time properly spent on a case and reduces the risk of underpricing complex or evolving matters. It offers flexibility to adjust resources as issues unfold. For the client, it can provide transparency on what work has been done and by whom, and it allows work to be scaled up or down according to need; clients only pay for the work actually undertaken.

However, the main disadvantage for the client is the uncertainty regarding the final cost. While the solicitor must provide an estimate, unforeseen complexities can lead to the final bill exceeding the initial estimate. Clients may also perceive an hourly model as giving fewer incentives for efficiency, although professional obligations require solicitors to act competently, efficiently and in the client’s best interests. If cost certainty is important, clients can seek fee caps or staged fixed fees to mitigate risk.

Worked Example 1.1

Asha instructs Ben, a solicitor, to advise on a straightforward employment query. Ben's hourly rate is £250 plus VAT. Ben spends 3 hours researching the issue, drafting advice, and communicating with Asha. What will Asha's fee be (excluding VAT)?

Answer:
Asha's fee will be 3 hours * £250/hour = £750 (plus VAT). If Ben had also incurred disbursements, such as paying for a specific database search, that cost would be added to the bill.

Revision Tip

When advising a client on an hourly rate basis, it is essential to provide the best possible estimate of the likely overall cost. Regularly update the client if it appears the estimate might be exceeded, explaining the reasons why. This manages client expectations and adheres to professional conduct rules. Where appropriate, propose options such as a fee cap for a defined stage to give the client cost control.

Worked Example 1.2

Maria instructs a firm at £220/hour (associate) and £140/hour (paralegal). The firm estimates 6–8 hours for the initial scope, based on assumptions that no third-party objections arise. The associate spends 5 hours and the paralegal 3 hours. A third-party objection later requires an extra 2 hours of associate time; the firm notifies Maria, revises the estimate, and explains the reason.

Calculate the fees before and after the objection (excluding VAT and disbursements).

Answer:
Initial work: associate 5h at £220 = £1,100; paralegal 3h at £140 = £420; total £1,520. Extra work due to objection: associate 2h at £220 = £440. Revised total = £1,960 (plus VAT and any disbursements). The firm complied with duties by notifying Maria and updating the estimate when new work arose.

Fixed Fee Funding

An alternative private funding method is the fixed fee arrangement. Here, the solicitor and client agree on a set price for the legal work at the beginning of the matter.

How Fixed Fees Work

The solicitor assesses the work involved in a particular task or transaction (e.g., drafting a simple will, handling a standard property purchase) and quotes a single fee to cover that work. This fee usually excludes disbursements and VAT, which are charged separately. The agreed fee is payable regardless of the actual time spent by the solicitor.

Key Term: fixed fee
A pre-agreed price for defined work, usually exclusive of VAT and disbursements, providing cost certainty for the agreed scope.

Clear scope definition and assumptions are essential to fixed fee arrangements. The retainer should specify:

• The tasks included (e.g., drafting and one round of amendments; standard searches; routine correspondence).
• What is excluded (e.g., non-standard issues, third-party disputes, complex tax advice, or advice on commercial merits) unless explicitly included.
• Any assumptions (e.g., the matter proceeds without unforeseen complications; routine steps only).
• How variations will be handled (e.g., a further fixed fee for additional work, hourly rates for out-of-scope tasks, or staged fees for phases).
• Whether the fixed fee includes limited iterations or meetings, to avoid ambiguity about extensive redrafting or prolonged negotiation.

Fixed fees are common in non-litigation contexts such as domestic conveyancing, wills, and certain business documents. They are increasingly used in litigation for defined stages (e.g., pre-action letters or drafting a particular statement), but care is needed to avoid open-ended obligations beyond the agreed scope.

Advantages and Disadvantages

The main advantage of a fixed fee for the client is cost certainty. They know exactly how much the specified legal work will cost from the outset. This can be attractive for budgetable matters. For the solicitor, it provides predictable income and simplifies billing. Fixed fees may also align incentives to work efficiently.

However, the solicitor bears the risk: if the work takes significantly longer than anticipated, the fee might become unremunerative. Conversely, if the work is completed quickly, the client might feel they have overpaid relative to the time spent. Fixed fees that are not carefully scoped or that omit clear variation provisions can lead to disputes. If unforeseen complexity arises and the scope needs to expand, the solicitor must seek the client’s agreement to vary the retainer before undertaking additional charged work.

Exam Warning

A solicitor agreeing to a fixed fee is generally bound by that fee, even if the work proves more complex or time-consuming than expected. Attempting to increase the fee later, without the client's express agreement to vary the retainer due to a change in instructions or scope, would likely breach professional conduct duties.

Worked Example 1.3

Chandra asks two solicitors for quotes to draft a basic partnership agreement. Solicitor A quotes an hourly rate of £200 plus VAT, estimating it will take 4-6 hours (£800-£1200 + VAT total estimate). Solicitor B quotes a fixed fee of £950 plus VAT. Chandra wants certainty about the cost. Which option provides this?

Answer:
Solicitor B's fixed fee of £950 plus VAT provides cost certainty. Chandra knows the exact fee for the partnership agreement (excluding VAT and disbursements), whereas with Solicitor A, the final cost is an estimate and could vary depending on the actual time spent.

Worked Example 1.4

A firm agrees a fixed fee of £1,200 plus VAT to draft and negotiate a straightforward commercial licence, assuming no complex IP issues and up to two rounds of amendments. During negotiation, a novel IP issue arises requiring specialist input and substantial redrafting. The retainer states out-of-scope issues will be charged at hourly rates if agreed.

What should the firm do, and how is the fee handled?

Answer:
The firm should pause, explain the new complexity and its impact on scope, and seek the client’s agreement to vary the retainer (e.g., introduce an hourly rate for the additional work or agree a further fixed fee for the IP issue). The original fixed fee covers the work within scope (including the two amendment rounds); the additional work is charged on the agreed varied basis. Proceeding without client agreement would risk a conduct breach.

Practical considerations common to both hourly and fixed arrangements

• Money on account: At the outset, firms commonly request funds on account to cover expected disbursements and initial work. This is more than an administrative convenience; it enables prompt payment of necessary third-party costs.
• Disbursements: Clients should be told which disbursements are likely, their approximate amounts, and whether VAT applies. In litigation, counsel’s fees can be significant and may require specific authorisation.
• Interim billing: Regular billing helps clients track spend and can reveal early whether estimates need updating.
• VAT: Unless a fee is expressly stated to include VAT, assume VAT is added. Quote clearly whether fees and disbursements are exclusive or inclusive of VAT.
• Complaints and bill challenges: The client care letter should explain how to raise concerns and the availability of externally mediated resolution. Clients may request itemised bills and, subject to statutory rules, seek court assessment.
• Withdrawal for non-payment: Where bills are unpaid or requested money on account is not provided, solicitors may, with good reason and reasonable notice, cease acting to protect themselves from further unrecoverable work, while taking steps to avoid prejudice to the client’s interests.
• Lien over papers: A retaining lien allows the solicitor to hold client papers until outstanding fees are paid, subject to fairness and any overriding duties in specific contexts (e.g., court orders or urgent prejudice).

Key Term: lien
A solicitor’s retaining lien permits holding client papers until outstanding fees are paid, subject to legal and regulatory limits and the need to avoid undue prejudice to the client.

Worked Example 1.5

A residential conveyancing matter is agreed at a fixed fee of £1,500 plus VAT and disbursements, with £500 requested on account to fund searches. After initial steps, the seller withdraws and the transaction aborts. The retainer provides that abortive transactions will be billed for work done up to a capped amount of £600 plus VAT, and unused money on account will be returned.

What amount is payable and what happens to the money on account?

Answer:
The firm may bill up to £600 plus VAT for work completed before abort (as per the retainer). Of the £500 paid on account, the firm can apply funds to that bill, returning any surplus balance once final disbursements are reconciled. If disbursements incurred exceed the balance, the client will owe the shortfall.

Ethical and professional duties on costs information

A core conduct duty is to give the client clear, timely and accurate information on the basis of charges and likely overall costs, both at the start and when there is a material change. Practically, this means:

• Setting out fee structures, VAT and disbursements distinctly and plainly.
• Providing a realistic estimate with assumptions; revising promptly if circumstances change.
• Explaining the consequences of scope changes and obtaining express agreement before doing chargeable extra work.
• Confirming billing intervals, payment terms, and any interest on late payment.
• Making complaints and bill-challenge procedures clear, including signposting external bodies where applicable.

Scope control is equally important. Courts have stressed there is no general retainer; obligations depend on the particular work agreed. Solicitors should avoid drifting into unagreed advisory territory (e.g., commercial risk assessments) without express client consent and terms that include the associated fees. Clarity protects both client and solicitor: it ensures the client gets the advice they expect at a price they understand and helps avoid fee disputes later.

Private retainers in litigation are less common than in non-litigation matters but remain important. Where litigation is privately funded, clients must be told about potential liability for the other side’s costs, the risk of adverse costs orders, and how counsel’s fees and court fees will be handled. Staged fixed fees for parts of litigation (e.g., pre-action or pleadings) can help manage costs, but they must be drafted carefully to avoid unintended commitments beyond the agreed phase.

Finally, transparency is not solely about initial pricing. It is about ongoing communication. Regular updates, clear explanations when estimates change, and documenting any client-approved variations are practical expressions of the duty to provide the best possible information on costs.

Key Point Checklist

This article has covered the following key knowledge points:

• A private retainer is a contract where the client pays the solicitor directly for legal services.
• Solicitors have a professional duty to provide clear and transparent information about costs.
• Hourly rate funding involves charging the client based on the time spent on the matter, offering flexibility but cost uncertainty.
• Fixed fee funding involves agreeing a set price for specific legal work upfront, providing cost certainty but carrying risk for the solicitor if the work is underestimated.
• Accurate time recording is essential for hourly billing.
• Providing estimates and updating them is essential when charging hourly rates.
• Fixed fees cannot usually be increased later if the work takes longer than expected.
• Money on account and interim billing are common features of private retainers to manage disbursements and cash flow.
• Clear scope definition, assumptions, and exclusions are critical to avoid disputes in both hourly and fixed fee arrangements.
• Clients should be informed about disbursements, VAT, billing frequency, complaint routes, and their right to challenge bills.
• Solicitors may cease acting for non-payment with reasonable notice and may exercise a retaining lien, subject to fairness and regulatory limits.

Key Terms and Concepts

• retainer
• costs
• charging rate
• disbursements
• money on account
• estimate
• fixed fee
• lien