Demand Letters for Retainer Refunds: Unearned Professional Fees
Demand Letters for Retainer Refunds: Unearned Professional Fees
How to legally challenge “nonrefundable” professional fees (Lawyers, Coaches, Consultants, Agencies) and demand the return of unearned prepayments.
The “Nonrefundable” Myth: True Retainers vs. Advance Fees
Many professional services—from marketing agencies and business coaches to lawyers and high-end consultants—require a large upfront payment, often called a “retainer.” However, under both contract law and professional ethics rules, the term “nonrefundable” is frequently unenforceable if the fee remains unearned.
| Feature | Advance Fee (Most Common) | True Retainer (Rare) |
|---|---|---|
| Purpose of Payment | Prepayment for future services (e.g., 20 hours of work, 3 months of coaching). | Payment to secure availability and prevent the professional from working for a competitor. |
| Refundability | Must be refunded if unearned, regardless of contract language. | Can be nonrefundable, but only covers opportunity costs, not services. |
| Ethical Rule | Treated as client/customer funds until the work is actually performed. | Treated as professional’s property immediately upon receipt. |
| The Law Applies To | Consultants, Agencies, Coaches, Lawyers, Developers. | Mostly Lawyers (specifically defined by ethics rules). |
Legal Frameworks for Recovery
A demand letter for a retainer refund leverages three primary legal theories:
- Unjust Enrichment / Failure of Consideration: The provider received a benefit (your money) but failed to provide the agreed-upon return benefit (the service). They have been unjustly enriched by holding your unearned funds.
- Breach of Contract: The provider failed to start the project, missed key deadlines, or unilaterally terminated the agreement, which constitutes a breach, requiring the refund of unearned fees.
- Unenforceable Liquidated Damages / Penalty: In many consumer contracts (and some B2B contracts), a “nonrefundable” clause functions as a liquidated damages provision. If the amount is an unreasonable penalty compared to the actual harm suffered by the professional (which is often minimal if the project never started), a court will likely strike the clause down.
A strong demand letter must argue the unearned fee is an illegal penalty, not a valid retention fee.
Client Letter: Demand for Refund and Accounting
Use this letter when you have paid a retainer but the project never started, stalled, or was cancelled early, and the professional is refusing to refund the remainder.
The Required Accounting Breakdown
Your demand letter must be factual and include a clear, itemized calculation. This forces the professional to respond with their own accounting, moving the dispute away from a simple “yes/no” to a discussion of hours and value.
| Item | Amount/Calculation |
|---|---|
| A. Initial Retainer Paid | \$[Total Retainer Amount, e.g., 10,000.00] |
| B. Services Rendered (Professional’s Claim) | [e.g., 5 hours x $200/hr = $1,000.00] |
| C. Agreed Deliverables Completed (Value) | [e.g., Final Strategy Document = $1,500.00] |
| D. Total Earned Fees (B + C) | \$[Total Earned Amount, e.g., 2,500.00] |
| E. Refund Demanded (A – D) | \$[Refund Due, e.g., 7,500.00] |
Demand Letter Template: The Unearned Fee
[Your Name]
[Your Address]
[Your Phone/Email]
[Date]
[Professional's/Agency's Name]
[Professional's/Agency's Address]
[Attn: Legal Department or CEO]
SUBJECT: DEMAND FOR IMMEDIATE REFUND OF UNUSED RETAINER/ADVANCE FEE – \$[Refund Due Amount]
Dear [Professional's Name or Contact Person],
This letter concerns the engagement agreement dated [Date of Agreement] under which I retained your services for [Briefly describe service: e.g., website redesign, business coaching, legal consultation].
On [Date of Payment], I paid an advance fee/retainer of \$[Total Retainer Amount].
Despite this payment, the agreed-upon project either [State the fact: e.g., never commenced, was terminated by your firm on X date, or stalled after initial consultation].
Based on my records, the maximum value of services and deliverables provided to date is \$[Total Earned Amount] (see attached summary). This leaves a balance of \$[Refund Due Amount] in unearned fees.
Legal Basis for Refund:
I understand you assert the retainer is "nonrefundable." Please be advised that under general contract principles, an advance fee remains the client’s property until earned. A provision stating otherwise for unearned funds acts as an unreasonable penalty and is unenforceable. I demand an itemized accounting of all time spent and expenses incurred that justify retaining any portion of the fee beyond the \$[Total Earned Amount] acknowledged above.
Demand for Action:
I demand the immediate refund of the unearned fee in the amount of \$[Refund Due Amount]. You have 14 calendar days from the date of this letter to process the full refund.
Failure to remit this payment or to provide a detailed, justifiable accounting within this timeframe will result in the immediate filing of a complaint for breach of contract, unjust enrichment, and recovery of damages in Small Claims Court, and may be reported to relevant professional licensing boards (e.g., State Bar, trade associations).
I look forward to your prompt cooperation in resolving this matter amicably.
Sincerely,
[Your Signature]
[Your Typed Name]
Professional Response: Strategies to Resolve a Refund Demand
If you are a professional (consultant, agency owner, lawyer) who receives a demand for a retainer refund, how you respond can determine whether the matter escalates to litigation. The goal is transparency and clear communication regarding the earned portion of the fee.
Response Options
-
Option 1: Full Refund (Goodwill & Risk Control)
If the project barely started, the fee is modest, or you know the “nonrefundable” clause is weak, issuing a full refund and framing it as a goodwill gesture is the fastest way to kill the dispute and minimize reputational damage. This is a low-risk, high-return strategy.
Suggested Line: “While our agreement stated the fee was nonrefundable, we acknowledge the project did not progress as expected. As a gesture of goodwill, we are issuing a full refund of the \$X,XXX paid.” -
Option 2: Partial Refund with Itemized Accounting (The Defensible Option)
If work *was* performed (e.g., discovery, strategy, initial drafts), calculate the exact value of that work based on your standard hourly rate or the contractual phase completion. Refund the difference, clearly explaining your calculation.
Category Calculation Initial Retainer Received \$10,000.00 Earned: Discovery & Intake (8 hrs @ \$250) -\$2,000.00 Earned: Draft Strategy Document (Phase 1) -\$1,500.00 Refund Due / Offered \$6,500.00 -
Option 3: Standing on the Retainer (High Risk, Fact-Dependent)
Only use this if you have a genuine “true retainer” (uncommon outside of very specific legal contracts) or if the cancellation occurred so late that your documented, lost opportunity costs truly justify the fee. Be prepared for litigation if you choose this path.
Q&A: Retainer Refunds and Disputes
Almost always. Most lawyers’ “retainers” are actually advance fee payments. If the lawyer is discharged or withdraws, they must promptly refund any portion of the fee that has not been earned. The only major exception is a “true retainer” paid solely to guarantee availability and prevent conflicts, but even that is heavily scrutinized.
The label is less important than the function. If the “deposit” was meant to cover future services, it’s an advance fee and must be refunded if unearned. If it’s characterized as a fee for cancellation (liquidated damages), it must be a reasonable estimate of the professional’s damages at the time of contracting. If it’s excessive, it is considered an unenforceable penalty.
Your options depend on the amount and the professional’s industry:
- Small Claims Court: If the amount is below the limit (usually \$5k–\$10k), this is often the fastest and most cost-effective path.
- Professional Complaint: Report the professional to their relevant licensing body (e.g., State Bar for lawyers, Secretary of State for businesses).
- Consumer Protection Agency: File a complaint with the Better Business Bureau (BBB) or a state consumer affairs division.
Next Steps: Get Your Money Back
If you have a professional holding a large retainer for unperformed work, gather your contract, payment receipts, and any communications showing the project stalled, then reach out to discuss your options.Contact: owner@terms.law