Performance fees are a special form of remuneration in the legal profession. Are you wondering how they are calculated and managed? This form of remuneration, linked to the success of a case, obeys strict rules defined by professional ethics and regulations. Judicial risk assessment plays an essential role in determining the applicable rate. Understanding these mechanisms will enable you to establish a transparent fee agreement with your customers, in line with compliance principles.

What are result-based fees for a lawyer?

Fees for results are additional remuneration paid to the lawyer based on the success of a case, as opposed to flat-rate or time-based fees. This type of remuneration is conditional: you only receive it if the outcome is favorable to your client, and it can be added to the basic fee or, in certain cases, constitute the main form of remuneration. Article 10 of the law of December 31, 1971 authorizes this practice, while strictly prohibiting pure quota litis, i.e. remuneration constituting the sole consideration for your services and fixed exclusively in proportion to the result obtained.

Methods for calculating performance fees

Calculating the percentage gain

The most common method is to determine a percentage of the amount obtained for the customer. You set this rate according to the complexity of the case, the risks involved and the scope of the work involved. In practice, rates generally vary between 10% and 30% of the sums recovered, providing immediate clarity for your customer.

For a commercial dispute resulting in a judgment of 100,000 euros, a 20% success fee would represent 20,000 euros. This proportional approach directly aligns your remuneration with the profit actually obtained by your client.

Calculation based on added value compared with initial offers

This method calculates your fees on the difference between the final result and a reference situation, particularly suitable for transactions and negotiations. For example, if your adversary offers 50,000 euros and you obtain 75,000 euros, your fees are calculated on the 25,000 euros of added value: with a rate of 20%, you would receive 5,000 euros.

This approach directly enhances the value of your contribution, while at the same time requiring precise documentation of the initial offers in your file to justify the calculation.

The progressive bearing system

You can also opt for a tiered system that modulates the percentage according to the amount obtained. This approach combines fairness and motivation.

An example of a progressive scale: 15% on the first 50,000 euros, 20% between 50,000 and 100,000 euros, then 25% above that. For a result of 120,000 euros, the calculation would give a total fee of 22,500 euros.

This method rewards exceptional results while maintaining overall proportionality.

Ethical rules governing calculation

The obligation to formalize in writing

Any fee for services rendered must be set out in a written fee agreement. This requirement protects both lawyer and client by avoiding misunderstandings.

The agreement must specify the calculation method, the applicable rate, the payment terms and the definition of the result triggering payment. You must submit this document before the start of your intervention or, at the latest, before the conclusion of the first agreement.

The absence of a written agreement exposes you to disciplinary sanctions and considerably weakens your position in the event of a dispute over fees. Rigorous formalization is an essential safeguard.

The principle of proportionality

Your fees must remain proportionate to the services rendered, the customer’s financial situation and the difficulty of the case. This fundamental principle applies with even greater vigilance to success fees.

A result-based fee of 50% on a straightforward case would probably be deemed excessive, even if the client had accepted this rate. The President of the Bar may reduce fees that are manifestly disproportionate, even in the presence of a signed agreement.

You must therefore objectively assess the complexity of the case, the time invested, the risks assumed and the expertise required. This analysis will justify the rate adopted and demonstrate compliance with the principle of proportionality.

Prohibition of pure quota litis

Pure quota litis agreements are still strictly forbidden in France. You cannot accept a case where your fees are the only remuneration, and are fixed exclusively in proportion to the result.

This prohibition is designed to preserve the lawyer’s independence and avoid conflicts of interest. You must always provide for either a basic fee, or a time-based fee in addition to the contingency fee.

An agreement stipulating only 30% of the amount recovered, with no minimum or basic fee, would be null and void. On the other hand, combining a fixed fee of 2,000 euros with 20% of the result is perfectly legal.

The obligation to formalize in writing

Any fee for services rendered must be set out in a written fee agreement, delivered prior to the start of the work. This requirement protects both lawyer and client by avoiding misunderstandings. The agreement must specify the calculation method, the applicable rate, the payment terms and the exact definition of the result triggering payment. Failure to formalize the agreement in writing may result in disciplinary sanctions, and considerably weakens your position in the event of a dispute, making this rigorous documentation essential.

The principle of proportionality

Your fees must remain proportionate to the services rendered, the client’s financial situation and the difficulty of the case, a principle that applies with even greater vigilance to result-based fees. A rate of 50% on a simple case would be considered excessive, even with the client’s agreement, as the Bâtonnier can reduce fees that are manifestly disproportionate despite a signed agreement. An objective assessment of the complexity of the case, the time invested, the risks assumed and the expertise required will justify the rate adopted and demonstrate compliance with this fundamental principle.

Prohibition of pure quota litis

Pure quota litis agreements are still strictly forbidden in France: you cannot agree to remuneration that constitutes the sole consideration for your services and is fixed exclusively in proportion to the result. An agreement providing for only 30% of the amount recovered, with no minimum fee, would be null and void. On the other hand, combining a fixed fee of 2,000 euros with 20% of the result is perfectly legal.

Special calculation situations

Fees for divorce results

In divorce proceedings, fees may include a proportion of the outcome relating to property issues, such as obtaining a compensatory allowance or a favorable division of property. The calculation is generally based on the difference between the initial claims and the result obtained.

Judicial liquidation files

In the case of judicial liquidation, fees may be calculated on the basis of the sums actually recovered for creditors, or on the basis of the improvement obtained for the debtor. The complexity of these collective proceedings justifies a particularly precise definition of the expected result in the fee agreement.

Administrative and accounting management of profit and loss fees

Invoicing and traceability

Invoicing performance fees requires particular rigor. You must issue a detailed invoice specifying the basis of calculation, the rate applied and the amount obtained for the customer. This transparency builds trust and prevents later disputes.

Keep all supporting documents proving the result obtained: judgement, signed transaction, bank transfer received by the customer. This documentation protects you against any subsequent disputes and facilitates ethical or tax audits.

Appropriate invoicing software greatly simplifies traceability. Specialized billing tools automate calculations according to the parameters defined in the agreement, and generate invoices that comply with regulatory requirements. This saves you precious time, while making your administrative practices more secure.

Accounting and tax treatment

From an accounting point of view, success fees are income to be recognized when they are definitively acquired. You should only record them once the result has been obtained and the amount can be determined with certainty.

For tax purposes, these fees are taxable in the year in which they are received by BNC lawyers. For example, if you receive a fee in 2024 for a case concluded in 2023, it will be taxed in 2024. This “collection rule” simplifies management, but requires particular vigilance at year-end.

VAT is charged at the usual rate of 20%. You must collect it on the total amount of your fees and pay it to the tax authorities according to your tax regime. Don’t forget to mention VAT on your invoices to comply with legal requirements.

Invoicing and traceability

You need to issue a detailed invoice specifying the basis of calculation, the rate applied and the amount obtained for the customer, while retaining all supporting documents demonstrating the result obtained (judgment, signed transaction, bank transfer received). This documentation protects against any subsequent dispute and facilitates ethical or tax audits.

Accounting and tax treatment

From an accounting point of view, fees are recorded when they are definitively acquired, i.e. once the result has been obtained and the amount can be determined with certainty. From a tax point of view, these fees are taxable in the year they are received, and VAT is charged at the usual rate of 20% on the total amount.

Best practices for securing the calculation of performance fees

To avoid disputes, define precisely in your agreement what constitutes a “result”: favorable judgment, actual payment, or signed settlement. You should also include review clauses if the proceedings extend beyond the initial forecasts, enabling you to adjust your base fee without jeopardizing the agreement on the outcome fee. Regular communication with your client on the progress of the case builds trust and facilitates acceptance of the final amount.

Don’t hesitate to consult the President of the Bar if you have any doubts about the conformity of an agreement. This preventive approach protects you against possible disciplinary sanctions and guarantees compliance with ethical rules, making it an essential investment in the long-term future of your business.