Hold off from agreeing your fee and you might not get paid at all
Often at the start of a project the basis upon which an architect is to be paid is unclear or not yet agreed. Unfortunately, fees are sometimes agreed only when the parties are terminating their relationship.
This situation arose in a recent case relating to a hotel development in Hamburg. UK-based Foremost Leisure, a franchisee of the Holiday Inn Express brand, was looking to expand into the German market. An intermediary, Mr Gross, put it in contact with project manager Drost Consult and SHE Architekten.
Initial discussions between Mr Gross, Drost and SHE about a profit share arrangement on the sale price of the site never progressed. Meanwhile, despite correspondence about the services involved, and the fees to be paid for them, nothing was actually signed. Indeed, Drost refused to sign one letter of intent which put it at risk of working without fee on the initial services.
Final straw
Drost and SHE did carry out initial services for the project, including procuring site surveys, liaising with the planning authority, drawing up programmes and producing the initial design. However, Foremost was increasingly dissatisfied with progress and engaged another project manager, MPP. Under a proposal to sign a hotel development service agreement (HDSA) for MPP, Drost and Gross were to carry out various services for fees, one being the ‘search for a suitable site’.
But when Foremost flew over from the UK to sign papers for the purchase of the site, Drost failed to attend that crucial meeting, which was the last straw for Foremost. Drost was dropped from the project.
Nevertheless, the parties did sign a remuneration letter soon afterwards which said SHE and Drost would be paid €150,000 for their services under the HDSA. Crucially, it said that ‘further performances from your side are not necessary’.
The €150,000 was not paid to Drost or SHE, which brought it to court. The courts had to decide whether the agreement related to payment for past services, or was a record of what Drost and SHE would be paid for future services were they to remain involved in the project.
Despite correspondence about the services involved, and the fees to be paid for them, nothing was actually signed
Hedging bets
The court rejected the idea that the early discussions about profit sharing meant that Drost and SHE did not expect to be paid a fee. That arrangement was, in the court’s view, merely Drost and SHE ‘hedging their bets’ in the light of Foremost’s reluctance to commit to payment of fees.
The other crucial factor in the court’s decision was that the HDSA did refer to historic services (for example finding the site, when it had already been found). Therefore the reference to payment for the HDSA services in the remuneration letter clearly could be linked to historic services already carried out, and did not simply relate to future services which may or may not be performed.
Finally the remuneration letter’s comment that ‘further performances from your side are not necessary’ suggested there would be no need for future services for Drost and SHE to be entitled to their fees. So the architect won a fair result, but one highly dependent on the terms of the final fee agreement.
This case highlights the dangers of dealing through intermediaries, rather than directly between client and architect.
It would also have been useful if some clarity on fees had been recorded early on. Although fee proposals were in circulation, and there was talk of a letter of intent, a formal letter early on which set out the fee position would have put beyond doubt the basis for the architect’s remuneration.
Alistair McGrigor is a partner at Nabarro LLP
QUANTUM MERUIT
A claim for payment on a ‘quantum meruit’ basis is a claim for payment of a reasonable sum based on the value of the works or services carried out. For example, in the case referred to above, in the absence of an agreement between the parties as to how much would be paid for the services, it would be possible to claim that (provided the parties did expect payment to be given), the fee payable would be on a ‘quantum meruit’ basis.
Quantum meruit payment arises in circumstances where the contract does not describe how the work or services will be paid for. This could be because there is no contract or agreement for the work or services, or because extra services are performed outside the scope of the appointment, or because, as in the above case, there was no agreed remuneration for the services to be performed.
While it seems fair that a party is paid what is reasonably due, the key concern with quantum meruit is that there is no certainty for either party as to what fee is going to be payable. The client’s view of what is ‘reasonable’ may be very different from the architect’s.