Definition and legal framework of the retainer
Ein Retainer is a term from contract law that is particularly used in the context of ongoing service relationships. It describes a contractual agreement in which a client as a principal pays a recurring fee to a professional group—often in advisory fields such as lawyers, tax advisors, or management consultants—to ensure that the respective party is continuously available to provide advice or support for a fee. A retainer may be structured as a fixed monthly, quarterly, or annual payment, regardless of the actual use of services during the respective period.
The following sections provide a detailed examination of the various legal aspects, areas of application, and contractual designs of a retainer.
Function and purpose of a retainer
A retainer serves to ensure the availability and continuous readiness of a service provider for a client. Through this advance payment, the client receives prioritized access to advisory or support services. The contract structure is intended to provide planning security for the service provider as well as constant availability for the client.
Distinction from other forms of remuneration
In contrast to performance-based fee models or remuneration billed according to actual work performed (e.g. hourly rate agreements), the retainer is generally independent of the client’s actual use of the service provider during the billing period. This means that the retainer must be paid even if the services used are below the agreed scope.
Legal principles and types of contracts
Legal nature of the retainer agreement
The retainer agreement is generally classified as a service contract under Section 611 of the German Civil Code (BGB), as its subject matter is the ongoing, service-related availability. In individual cases, the law on contracts for work and services (§ 631 BGB) or elements of a business management contract (§ 675 BGB) may be relevant if specific results or special management duties are the focus. Legally, however, the retainer is predominantly a service contract, as no specific results are owed but rather the continuous readiness to perform services.
Essential contractual components of a retainer
Retainer agreements typically regulate:
- Subject matter of the contract: Description of ongoing advisory or support services
- Remuneration structure: Amount and due date of the fixed fee (e.g. monthly flat rate)
- Availability guarantee: Response times and procedures for service requests
- Scope of services: if applicable, included hourly quotas, separable additional services
- Termination provisions: Contract term, notice periods and modalities
- Refund or transfer provisions: Handling of unused quotas
- Liability and limitation of liability: Special aspects in advisory contracts
Form of contract and formal requirements
In principle, there is freedom of form for a retainer agreement. However, for reasons of evidence and transparency, it is always advisable to record the agreement in writing, with the provisions clearly outlined. Special formalities exist only for activities subject to statutory formal requirements (for example, for certain mandates in legal or tax advisory fields).
Areas of application and industries
Retainers are used in practice across numerous advisory service sectors. Typically, they are found in:
- Consulting in the fields of law, data protection, or compliance
- Tax consulting and business management advisory services
- IT and software services (e.g. ongoing system support)
- Public relations and marketing consulting
- Management consulting
- Personnel consulting and recruiting
Each industry may have its own specific features in the design of the retainer agreement, for example regarding the scope and content of the services actually owed.
Retainer and fee law
Compatibility with statutory fee limits
Under German law, professional regulations may play a role, such as the Lawyers’ Compensation Act (RVG) or the Tax Advisors’ Remuneration Ordinance (StBVV), which set requirements for permissible fee models. Where statutory fee frameworks exist, retainer agreements must comply with these requirements and may not exceed the agreed fees unlawfully. A separate retainer agreement is generally possible if it conforms to statutory conditions.
VAT treatment of the retainer
Retainer services are considered ongoing services under value added tax law (§ 13 para. 1 no. 1a sentence 2 UStG). VAT is generally due at the end of the respective pre-registration period in which the payment is received or the respective service is provided. Proper invoicing with disclosure of statutory VAT must be ensured, unless the service provider is exempt from VAT.
Tax treatment
Retainer payments must be recorded as ongoing business income on the service provider’s side and as immediately deductible business expenses by the client, provided the payments are business-related. The allocation can relate, especially for multi-year retainer agreements, to the year in which the service is rendered or the year of payment, depending on the arrangement and allocation.
Special features when terminating the retainer
Termination modalities
Retainer agreements are regularly concluded for specific terms. They include notice periods that must be observed by both parties. Otherwise, the general statutory provisions for service contracts (§ 621 BGB) apply, unless otherwise agreed in the contract. Extraordinary termination is possible if there is an important reason.
Handling unused services
The retainer agreement should stipulate how unused quotas or unrequested services are to be handled. Possible models are those in which unused services expire, are transferred, or may be carried forward to the next month/period. The modalities should be clearly regulated to avoid future disputes.
International aspects of the retainer
In international service transactions, retainer agreements occur in particular with companies operating across borders. Here, foreign legal systems, currency fluctuations, and tax aspects may need to be considered. The contract should especially include a choice of law clause as well as provisions on venue and dispute resolution to ensure legal certainty for both parties.
Conclusion
The retainer is an important type of contract in service law, serving to secure long-term and reliable availability of advisory services. Its legal design requires special attention when drafting the contract, with regard to professional, tax, and VAT regulations, as well as clarity in dealing with unused elements of the services. Carefully worded retainer agreements provide planning security and transparency for all parties involved and are thus a proven instrument in the relationship between service providers and clients.
Frequently Asked Questions
How is a retainer agreement legally concluded?
A retainer agreement is legally concluded when both parties—the service provider and the client—agree on the essential contractual contents. In addition to agreement on remuneration (e.g. monthly flat rate or hourly quotas), the type and scope of the services to be provided, the contract term, and any termination modalities must also be clearly regulated. Ideally, the contract is concluded in writing to prevent problems of proof later on. In certain situations (e.g. with lawyers), written form is even mandatory. The contract should also contain provisions on billing, payment deadlines, proof of performance, and any limitation periods to ensure transparency and legal certainty for both parties. The validity also requires that the contract does not violate statutory prohibitions or public policy (§ 134, § 138 BGB).
What rights and obligations arise from a retainer agreement for both parties?
The service provider is obliged to keep the contractually agreed services available at all times during the specified term or to be available on call—regardless of whether the client actually makes use of the services. In return, the client is obliged to pay the agreed fee, even if the services are not used at all or only partially. The service provider must also be able to document availability, for example, by means of time records or protocols. The client may call on the services at any time, as long as they remain within the agreed quota. Both parties must observe any notice periods, confidentiality obligations, and other special contract terms.
Can retainer agreements be terminated at any time or do specific deadlines apply?
Whether and how a retainer agreement can be terminated depends primarily on the contractual agreements of the parties. Fixed terms (e.g. 6 or 12 months) and notice periods (e.g. one month to the end of the term) are often agreed. If no such provisions exist, general statutory rules apply: For so-called service contracts (§ 621 BGB) with an indefinite term, termination is usually possible with reasonable notice; for contracts for work and services (§ 648 BGB), different statutory provisions apply. If there is an important reason (loss of trust, serious contractual violations), termination may generally be effected even without notice. The applicable legal situation, however, depends strongly on the contract design and the nature of the retainer.
What legal consequences may result from non-fulfillment of the retainer agreement?
If one party fails to fulfill its contractual obligations, such as by not paying the fee or not providing the agreed services, this constitutes a breach of contract. The other party may assert the statutory rights: In addition to claims for damages, withdrawal, reduction, and, if applicable, extraordinary termination are possible. In practice, prior written notice is often advisable to give the other party a chance to remedy the situation. If non-fulfillment continues, damages can be claimed in court. It is advisable to document breaches of contract and any consequential damages to prevent future problems of proof. If contractual limitations or exclusions of liability exist, these must be considered within the limits of the law.
How are unused services within a retainer period treated legally?
The focus of a retainer agreement is usually the availability of specific services within a period, not their actual utilization. Therefore, the entitlement to unrequested services generally lapses at the end of the agreed period, unless a transfer (roll-over) has been expressly agreed. This means: The fee is also payable if the client does not use the services at all or only partially. An exception may apply if the service provider does not fulfill the so-called obligation to accept or cannot prove availability. For legal certainty, the precise regulation should always be stipulated in the contract.
Can the amount of the retainer fee be legally contested?
In principle, civil law upholds the concept of freedom of contract, so the parties are free to agree on the amount of the fee. A contestation of the fee agreement is only possible in exceptional cases, for example, in case of immorality (§ 138 BGB, e.g. a conspicuously disproportionate relationship between performance and consideration) or in cases of fraudulent misrepresentation, mistake, or duress (§§ 119 ff. BGB). An adjustment can be made subsequently if it turns out that a change of contract is necessary due to a disturbance of the basis of the transaction (§ 313 BGB). In certain regulated professions (e.g. lawyers, tax advisors), fees are subject to statutory or professional restrictions, which allow for a correction in the case of excessive fees.
Are retainer agreements subject to special formal requirements?
In general, retainer agreements are not subject to any formal requirements; they can thus be concluded orally, in writing, or even implicitly. However, written form is always recommended for evidentiary reasons, especially for extensive or long-term agreements. In some industries (e.g. contracts with lawyers, architects, or tax advisors), written form is even mandatory for evidentiary and documentation purposes (§ 3a RVG, § 34 StBerG). For consumer contracts, additional information and formal requirements may apply, as well as for distance selling or electronically concluded contracts.
