Legal Ethics Opinion #1588
Conflict of Interest--Compensation From Third Parties: Attorney
Receiving Commission for Assisting Client in Purchase of
Residential Real Estate
You have presented a hypothetical situation in which an attorney,
who does not have a real estate broker or salesman's license in
the Commonwealth of Virginia, is approached by clients for legal
services pertaining to the purchase of real estate. The attorney
advises his clients that he must first assure himself that he is
legally able to provide the services they request. You state
that he calls the Virginia State Bar, asking if he is permitted
to represent his clients in the purchase of real estate and
whether he is eligible for compensation based on the purchase
price. You state that the Bar informs him that his question
appears to be answered by Section 54.1-2103 of the Code of
Virginia (1950) as amended, which establishes an exception to the
real estate licensing laws for the "service rendered by an
attorney-at-law in the performance of his duties as such". In
order to provide more assurance, the attorney performs a diligent
search of all Virginia case law to determine if this statute has
been limited in any way. You state that he finds no such
indication and that he then drafts a contract for services in
which he agrees to represent his clients, stating that his fee
will be 3% of the purchase price.
You further indicate that the contract states, in part, that in
"the event of a cooperative sale, [Attorney] agrees to waive any
claim to compensation from [Client] if he is compensated
by the seller of real property that [Client] purchases." Client
agrees to the terms of the contract for services and Attorney
assists his clients in finding a house on which they decide to
make an offer. Attorney then assesses the house's marketability,
advises the clients on price, and drafts a contract for purchase.
The contract identifies Attorney as representing the buyers and
states:
Seller represents that he has agreed that the Listing Broker
will be paid a fee for service of 6%. In the event this is a
cooperative sale, the Selling Attorney is to receive 3% of
the fee to be paid the Listing Broker. Seller hereby
authorizes and directs the settlement agent to disburse to
the Listing Broker and the Selling Attorney from the Seller's
proceeds the respective proceeds of the fee at settlement.
The contract states further:
The parties confirm that in connection with the
transaction contemplated by this Contract, [Listing
Broker''s name] (the Listing Broker), and its
salespersons, have acted on behalf of Seller as Seller's
agent, and [Attorney's name] (the Purchaser's Attorney),
and its salespersons, by agreement, have acted on behalf
of Purchaser as Purchaser's agent.
You advise that the contract was signed by both the Seller and
the Buyer. However, as a condition of sale, the Seller asked
that "the standard board contract [to] be executed and [will]
supercede [sic] this contract".
You state that Clients agreed to this stipulation and that the
contract is transferred to the standard Northern Virginia
Association of Realtors forms provided by the broker representing
the Seller. Among these forms are the "Buyer and Seller Agency
Disclosure", and the "Sales Contract (Northern Virginia)". On
the disclosure form, Attorney writes his name, identifying
himself as an attorney, over the line marked "Firm Name",
disclosing that he represents the buyer. Instead of checking the
box marked "Buyer's Agent", Attorney crosses out the word "Agent"
and substitutes the words "Attorney for Purchase and Agent" and
checks the box.
You indicate that, on the sales contract form, Attorney is listed
as the settlement agent "to act for both parties unless either
party specifically requests otherwise". Sellers subsequently
decide to obtain separate counsel for the settlement. Attorney
also holds his clients' earnest money deposit until settlement as
identified in paragraph four of the contract, which states "The
Legal Purchaser has made a deposit with the Selling Company [vice
Listing Company] of [amount]..." Also, the contract states that
"The Listing Company and its salespersons are acting on behalf of
the Seller as the Seller's agent, and the Selling Company and its
salespersons, by agreement, are acting on behalf of the Purchaser
as the Purchaser's agent..."
You advise that, at closing, on the HUD-1 settlement sheet, the
Listing Company and Attorney are each listed as due a real estate
commission, and such commissions are paid from the proceeds of
the sale. In addition, the buyer pays Attorney a separate amount
for his settlement services.
You state that at no time during negotiations or at settlement
was Attorney's claim to compensation from the proceeds of the
sale ever challenged. Also, at no time during negotiations or
settlement did Attorney ever identify himself as a real estate
broker or a real estate agent.
Finally, you indicate that, several weeks after closing, Attorney
receives a letter from the Listing Company's corporate attorney
alleging that Attorney has acted improperly in this transaction.
Specifically, the Listing Company alleges that Section 54.1-2103
of the Code of Virginia is to be interpreted narrowly to only
"facilitate real estate related activities by the court-appointed
commissioner in a partition suit or the Executor of an estate,
for example". Thus, the Company concludes that Attorney has
"acted as a Real Estate Broker when [he was] not licensed to do
so." Orally, the Company further alleges that Attorney has
violated DR 5-105(A) and DR 5-106(A).
You have asked the committee to opine, under the facts of the
inquiry:
(1) whether Attorney has violated Section 54.1-2103 of the
Code of Virginia;
(2) whether Attorney has violated DR 5-105(A);
(3) whether Attorney has violated DR 5-106(A); and
(4) whether there has been the appearance of impropriety on
the part of Attorney.
The appropriate and controlling Disciplinary Rules related to
your inquiry are DR 5-105(A) which provides that a lawyer shall
decline proffered employment if the exercise of his independent
professional judgment in behalf of a client will be or is likely
to be adversely affected by the acceptance of the proffered
employment, except to the extent permitted under DR 5-105(C); DR
5-106(A) which states that except with the consent of his client
after full and adequate disclosure under the circumstances, a
lawyer shall not accept either compensation for his legal
services, or anything of value related to his representation of
or his employment by his client, from one other than his client;
DR 3-l02 which prohibits a lawyer or law firm from sharing legal
fees with a non-lawyer; and DR 2-l05(A) which requires that a
lawyer's fees shall be reasonable and adequately explained to the
client.
The committee responds to your inquiries relative to the facts
presented as follows:
(l) Whether or not Attorney has violated Section 54.1-2103
of the Code of Virginia raises a legal rather than an
ethical question, the determination of which is beyond
the purview of the committee.
(2) The committee is of the opinion that Attorney has not
violated DR 5-105(A) since the facts indicate that
Attorney represented the buyer only. The facts further
show that the sellers subsequently decided to obtain
independent counsel for the settlement. Thus, the
committee is of the view that Attorney has not
attempted to represent multiple clients with adverse
interests.
(3) The committee believes that Attorney has not violated
DR 5-106(A) since the Rule provides that a lawyer shall
not accept compensation from one other than his client,
except with full and adequate disclosure to the client.
The facts indicate that Attorney made the buyer aware,
in both the contract for services and the contract for
purchase of real estate, that his fee would be 3% of
the purchase price. The facts also state that client
agreed to the terms of the contract for services and
signed the contract for purchase. Therefore, the
committee opines that Attorney has made the requisite
disclosures.
(4) The committee is of the view that Canon Nine's
exhortation against the "appearance of impropriety" is
inapposite to the facts posited since that language
applies only in the limited context of DRs 9-101(A),
(B),(C), i.e., former judges, former government
attorneys, and attorneys' improper influence upon a
tribunal, legislative body, or public official.
Despite concluding that the lawyer has not engaged in conduct
which is per se violative of the Code of Professional
Responsibility, the committee cautions, however, that, in the
circumstances you describe, the lawyer must be mindful of the
prohibition of DR 3-l02 against a lawyer's sharing legal fees
with a non-lawyer. In addition, the committee further cautions
that since the receipt of a percentage commission of the sale
price may constitute legal fees, the lawyer must be cognizant of
the ethical requirement (as found in DR 2-l05(A) that a lawyer's
fee be reasonable.
Committee Opinion
June 14, 1994
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