Most small business owners in New Zealand only call a commercial lawyer once something has already gone wrong. A better rule of thumb is to get advice before you sign anything that is hard to undo, such as a lease, a shareholders' agreement or a contract to buy a business. This guide covers when a lawyer is worth paying for, what it is likely to cost, and how to keep the bill under control.

Situations where you should get a commercial lawyer

Some business decisions carry enough money or long-term risk that legal advice pays for itself. The common thread is that the document binds you for years, or exposes you personally if the business fails.

• Buying or selling a business, including due diligence and the sale and purchase agreement
• Signing or renewing a commercial lease, particularly where the landlord wants a personal guarantee
• Going into business with someone else and needing a shareholders' agreement or partnership agreement
• Signing a franchise agreement or a long-term supply or distribution contract
• Bringing in investors, or lending your own money to the company
• Receiving a letter of demand, a statutory demand or a threat of court action

A statutory demand deserves special mention because the deadlines are strict. A company usually has only 10 working days from being served to apply to the High Court to set it aside, and ignoring it can lead to liquidation proceedings. If one arrives, call a lawyer the same day.

When you can probably handle it yourself

Not every business task needs a lawyer. Registering a company with the Companies Office, getting a New Zealand Business Number and registering for GST can all be done online. Many owners do this themselves or through their accountant.

The government's business.govt.nz site also offers free tools, including an employment agreement builder. For money disputes, the Disputes Tribunal hears claims of up to $30,000 and lawyers cannot represent the parties, so your cost is limited to a modest filing fee.

Be careful with contract templates downloaded from overseas websites. They often ignore New Zealand law, including the Fair Trading Act and the Consumer Guarantees Act. A cheap template that fails when you need to rely on it is not a saving.

What commercial lawyers typically charge

Commercial lawyers in New Zealand mostly charge by the hour, with rates varying by seniority, firm size and location. As a broad guide, hourly rates commonly fall somewhere between $250 and $600 plus GST. Partners at large city firms can charge more than that.

Routine work is often quoted as a fixed fee instead. Reviewing a standard commercial lease might cost from several hundred dollars to a couple of thousand plus GST, while a tailored shareholders' agreement commonly runs to a few thousand. Buying a small business usually costs several thousand dollars or more, depending on how much due diligence is involved.

Treat these figures as rough indications only. The same job can cost very different amounts at a sole practitioner in a regional town and at a national firm in central Auckland.

What pushes the cost up

Legal fees mostly reflect time, so anything that adds hours adds cost. Knowing the main drivers helps you spot a blowout before it happens.

• Heavy negotiation, where drafts go back and forth many times with the other side
• Disorganised or missing records, such as unsigned contracts or incomplete financial information
• Urgency, especially instructions given days before a settlement or signing date
• Unusual or complex structures involving trusts, multiple companies or overseas parties
• Disputes that move from correspondence into court proceedings

Litigation is the most expensive category by a wide margin. A dispute that reaches the District Court or High Court can cost tens of thousands of dollars, and a successful party usually recovers only part of their costs. That is why paying for a well-drafted contract at the start is usually the cheaper path.

Fixed fee versus hourly billing

Fixed fees suit work with a clear beginning and end, such as a lease review, a standard set of terms of trade or a simple business purchase. You know the price in advance and the lawyer carries the risk of the job taking longer. Check exactly what is included, because extra rounds of negotiation are often charged separately.

Hourly billing suits work that is hard to scope, such as disputes or complex negotiations. If you are billed hourly, ask for an estimate and ask to be told before the estimate is exceeded. You can also ask for a fee cap, or for the work to be split into stages with a price for each.

Legal Aid and low-cost options for businesses

Civil Legal Aid exists for individuals who cannot afford a lawyer, and it is generally not available to companies. Community Law Centres also focus on individuals with limited means and do not usually advise on commercial matters. In practice, most business legal work has to be paid for privately.

There are still ways to reduce the cost. Many firms offer a free or low-cost first meeting, and some industry associations and chambers of commerce provide members with template documents or access to an advice line. Your accountant can also handle some structuring and compliance questions and tell you when a lawyer is really needed.

How to get a real quote

Lawyers in New Zealand must tell you in advance how their fees will be charged, and fees must be fair and reasonable. Use that to your advantage by asking for a written estimate from two or three firms before you commit. A firm that regularly acts for businesses of your size is usually better value than the biggest name in town.

• Send the actual documents and a short summary of what you want, so the estimate is based on facts
• Ask whether the price is fixed or an estimate, and whether it includes GST and disbursements
• Ask who will do the work and what their hourly rate is
• Ask what would cause the price to increase and how you will be told

You can keep the bill down by being organised, putting your questions in one email instead of ten, and deciding your commercial position before asking the lawyer to draft. If a bill seems unreasonable, raise it with the firm first. If that does not resolve it, the New Zealand Law Society's Lawyers Complaints Service can consider complaints about fees.